-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GKE6kBKPMRak1/YNC6xWT9nLQjNRIvM+eQJ+qi6jWDg9SYnQ5GUI+03xDoaZ6ZOR oZrw2aXn7uD/5hDcgK5UAA== 0000950131-97-001974.txt : 19970327 0000950131-97-001974.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950131-97-001974 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970321 DATE AS OF CHANGE: 19970326 SROS: CSX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHIRLPOOL CORP /DE/ CENTRAL INDEX KEY: 0000106640 STANDARD INDUSTRIAL CLASSIFICATION: 3630 IRS NUMBER: 381490038 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-03932 FILM NUMBER: 97560944 BUSINESS ADDRESS: STREET 1: WHIRLPOOL CNTR 2000 M 63 STREET 2: C/O CORPORATE SECRETARY CITY: BENTON HARBOR STATE: MI ZIP: 49022 BUSINESS PHONE: 6169235000 MAIL ADDRESS: STREET 1: WHIRLPOOL CTR 2000 M 63 STREET 2: C/O CORPORATE SECRETARY CITY: CENTON HARBOR STATE: MI ZIP: 49022 FORMER COMPANY: FORMER CONFORMED NAME: WHIRLPOOL SEEGER CORP DATE OF NAME CHANGE: 19710824 10-K405 1 FORM 10-K - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NUMBER 1-3932 WHIRLPOOL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 38-1490038 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 2000 NORTH M-63, BENTON HARBOR, 49022-2692 MICHIGAN (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (616) 923-5000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF CLASS ON WHICH REGISTERED -------------- --------------------- Common stock, par value $1.00 per share Chicago Stock Exchange New York Stock Exchange 7 3/4% Debentures due 2016 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K X . --- The aggregate market value of the voting stock of the registrant held by stockholders not including voting stock held by directors and elected officers of the registrant and certain employee plans of the registrant (the exclusion of such shares shall not be deemed an admission by the registrant that any such person is an affiliate of the registrant) on March 3, 1997, was $3,682,350,173. On March 3, 1997, the registrant had 74,842,729 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated herein by reference into the Part of the Form 10-K indicated:
PART OF FORM 10-K INTO DOCUMENT WHICH INCORPORATED -------- ---------------------- The Company's annual report to stockholders for the year ended December 31, 1996 Parts I, II and IV The Company's proxy statement for the 1997 annual meeting of stockholders (SEC File No. 1-3932) Part III
EXHIBIT INDEX ON PAGE:** TOTAL NUMBER OF PAGES:*** - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. GENERAL Whirlpool Corporation, the leading worldwide manufacturer and marketer of major home appliances, was incorporated in 1955 under the laws of Delaware as the successor to a business that traces its origin to 1898. As used herein, and except where the context otherwise requires, the term "Company" includes Whirlpool Corporation and its consolidated subsidiaries. All currency figures are in U.S. dollars. RECENT DEVELOPMENTS NORTH AMERICA In July 1996, the Company announced that following an evaluation by Sears Roebuck and Co. ("Sears"), the Company's largest trade customer, Sears would continue its business with the Company. In addition to providing laundry products, dishwashers, refrigerators, trash compactors and air control products under Sears' KENMORE and SEARS brand names, the Company will continue to sell KITCHENAID and WHIRLPOOL brand appliances through Sears' Brand Central outlets. In early 1996, the Company began production of gas and electric cooking ranges at a new facility in Tulsa, Oklahoma and small appliances at a new small appliance manufacturing facility in Greenville, Ohio. EUROPE In October 1996, the Company acquired the remaining minority (28%) equity interest in Whirlpool Tatramat (in the Republic of Slovakia) it did not already own for a purchase price of approximately $4 million. In September 1996, the Company acquired Gentech Trading Ltd. ("Gentech"), one of the largest appliance distributors and manufacturers in South Africa, from Power Technologies Group of Johannesburg, South Africa for a purchase price of approximately $27 million, consisting of $2 million in cash and $25 million in assumed liabilities. Gentech, renamed Whirlpool South Africa, manufactures refrigerators and markets manufactured and imported appliances under the WHIRLPOOL and local KIC brand names. Gentech's annual sales were about $100 million for its fiscal year 1995. ASIA During 1996, the Company closed its Whirlpool Asia research and engineering center in Singapore to more effectively use global technological product development resources, including existing technology centers located in the United States and Europe, to develop products for the Asia market. At the same time, the Company consolidated and relocated its Singapore regional headquarters to Hong Kong to achieve greater proximity to the majority of the Company's business in Asia. In November 1996, Whirlpool of India signed a memorandum of understanding ("MOU") with Tecumseh Products Company of the USA ("Tecumseh"), a global manufacturer of compressors, to sell WOI's compressor division and related facilities at Faridabad and Ballabhgarh, India. Under the terms of the MOU, Tecumseh would enter into a long-term supply agreement with the Company pursuant to which the Company would be required to purchase and Tecumseh would be required to sell compressors to the Company. The agreement is contingent upon receiving all necessary government and regulatory approvals and the transaction is expected to be finalized during 1997. 1 In May 1996, two of the Company's majority owned subsidiaries in India, Kelvinator of India ("KOI") and Whirlpool Washing Machines Limited ("WWML"), were merged and renamed Whirlpool of India ("WOI"). As part of the merger plan, the Company purchased an additional 27% interest in WWML for $12 million in April 1996 for a total interest of 78% in WWML. The merger will result in the Company having a 56% interest in the combined entity, WOI. FINANCIAL INFORMATION RELATING TO BUSINESS SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The Company operates predominantly in the business segments classified as Major Home Appliances and Financial Services. During 1996, the Company's U.S. operations sold product into Canada, Mexico, Latin America, Asia, Europe, Africa and the Middle East. However, export sales by the Company's U.S. operations were less than 10 percent of gross revenues. For certain other financial information concerning the Company's business segments and foreign and domestic operations, see Notes 1 and 15 of the Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders (the "Annual Report"), which information is incorporated herein by reference. PRODUCTS AND SERVICES The Company manufactures and markets a full line of major home appliances and related products for home and commercial use and provides certain inventory, consumer, and other financial services. The Company's principal products and financial services are as follows: Major Home Appliances: Home laundry appliances: automatic and semi-automatic washers; automatic dryers; coin-operated laundry machines; and stacked washer-dryer units. Home refrigeration and room air conditioning equipment: refrigerator- freezers; upright and chest freezers; room air conditioners; dehumidifiers; and residential, commercial, and component ice makers; compact refrigerators; and wine coolers. Home cooking appliances: free-standing and set-in ranges; built-in ovens and surface cooking units; microwave ovens; countertop cooking units; and range hoods. Small household appliances: stand mixers; hand mixers; food processors; blenders; and toasters. Other home appliances, products and services: dishwashers; residential trash compactors; food waste disposers; hot water dispensers; water filtration products; oil radiators; water heaters; kitchen sinks; component parts; replacement parts, repair services and warranty contracts; and product kits. Financial Services: Whirlpool Financial Corporation ("WFC") provides inventory financing and factoring services, including stocking and display programs for retailers and distributors that market products manufactured by the Company in North America and various countries in Europe, Latin America and Asia plus other manufacturers of consumer durables in the United States and Canada. It also provides consumer financing services for retail sales in the United States, principally through Whirlpool Financial National Bank ("WFNB") which offers consumer credit card programs and in India through Whirlpool Apple Consumer Credit Pvt. Ltd., a joint venture between a subsidiary of WFC and Apple Industries Limited. WFC continues to phase out its aerospace financing and leasing portfolios. 2 The Company purchases a portion of its product requirements from other manufacturers for resale by the Company. The Company purchases some of its requirements of twin tub washers, and all of its requirements of certain cooking products, range hoods, food waste disposers, upright and chest freezers (North America only), wine coolers, food processors and certain other miscellaneous products from other manufacturers for resale by the Company. For certain information with respect to each class of similar products which accounted for 10 percent or more of the Company's consolidated revenue in 1996, 1995, and 1994, see "Revenue Information" in the Annual Report, which information is incorporated herein by reference. The Company has been the principal supplier of home laundry appliances to Sears for over 80 years. The Company is also the principal supplier to Sears of residential trash compactors and dehumidifiers and a major supplier to Sears of dishwashers, room air conditioners, and home refrigeration equipment. The Company also supplies Sears with certain other products for which the Company is not currently a major supplier. Sales of such other products to Sears are not significant to the Company's business. The Company supplies products to Sears for sale under Sears' KENMORE and SEARS brand names. Sears has also been a major outlet for the Company's WHIRLPOOL and KITCHENAID brand appliances since 1989. As previously noted under the caption "Recent Developments," the Company announced that following an evaluation by Sears of its home appliance suppliers, Sears would retain it business relationship with the Company. Major home appliances are marketed and distributed in the United States under the WHIRLPOOL, KITCHENAID, ROPER, ESTATE, CHAMBERS, and COOLERATOR brand names through Company-owned sales branches primarily to retailers and builders. KITCHENAID portable appliances are sold to retailers either directly or through an independent representative organization. The Company sells product to the builder trade both directly and through contract distributors. Major home appliances are manufactured and/or distributed in Canada under the INGLIS, ADMIRAL, SPEED QUEEN, WHIRLPOOL, ESTATE, ROPER, and KITCHENAID brand names. Refrigerator-freezers, laundry products, room air conditioners, residential trash compactors, residential and component ice makers, cooking products, dishwashers, and other products are sold in limited quantities by the Company to other manufacturers and retailers for resale in North America under their respective brand names. In Europe, Whirlpool Europe markets and distributes its major home appliances through regional networks under the WHIRLPOOL, BAUKNECHT, IGNIS, and LADEN brand names. In certain Eastern European countries, products bearing the WHIRLPOOL and IGNIS brand names are sold through independent distributors. Whirlpool Europe also has company-owned sales subsidiaries in Hungary, Poland, the Czech Republic, Slovakia, Greece, Romania, Bulgaria, and Morocco and a representative office in Russia. Whirlpool Europe has a subsidiary in South Africa through which it markets products under the WHIRLPOOL and KIC brand names. Whirlpool Europe also sells products carrying the WHIRLPOOL, BAUKNECHT, IGNIS, ALGOR, and FIDES brand names to the Company's wholly-owned sales companies in Asia and/or Latin America (Whirlpool Asia Appliance Group and the Latin America Appliance Group) and to independent distributors and retailers in Africa and the Middle East. In Asia, the Company markets and distributes its major home appliances through three operating regions: the Greater China region, based in Hong Kong, which includes the Peoples Republic of China and Hong Kong; the South Asia region, based in Delhi, which includes India, Pakistan, and other surrounding markets; and the Asia Pacific Sales region, based in Singapore, which includes Southeast Asia, Japan, Korea, the Philippines, Thailand, Taiwan, Australia, and New Zealand. The Company markets and sells its products in Asia under the WHIRLPOOL, KITCHENAID, ROPER, IGNIS, BAUKNECHT, and RAYBO brand names as well as under the SMC, NARCISSUS and SNOWFLAKE brand names (owned by its joint venture partners and used under license). At the end of 1996, the Company discontinued its licensed use of the KELVINATOR OF INDIA name and the KELVINATOR brand for refrigerators. The Company also discontinued its licensed use of the TVS brand name effective beginning in 1997. 3 WHIRLPOOL FINANCIAL CORPORATION WFC provides diversified financial services to businesses and consumers throughout the United States and Canada and factoring, inventory and display financing activities in Europe, Mexico, Argentina, India and Thailand. WFC conducts its business through three divisions: the Inventory Finance Division, which provides floorplan financing and display programs to retailers in the United States and Canada; the Consumer Finance Division, which provides installment financing and, through WFNB, WFC's credit card bank, consumer credit card programs in the United States; and the International Division, operated through Whirlpool Financial Corporation International and its subsidiaries, Whirlpool Financial Latin America Inc. and Whirlpool Financial Corporation Overseas, wholly-owned subsidiaries of WFC, which provide factoring, inventory and display financing for retailers of products of Whirlpool Europe, Whirlpool Argentina, Vitromatic, Whirlpool's joint venture company in Mexico, Whirlpool India, and Whirlpool Thailand. Inventory financing represents the largest segment of WFC's business, providing services for manufacturers, distributors, and retailers in the appliance, consumer electronics, outdoor power equipment, residential heating and cooling equipment, and music industries. As previously mentioned, WFC is phasing-out its aerospace financing and leasing portfolios. COMPETITION The major home appliance business is highly competitive. The Company believes that, in terms of units sold annually, it is the largest U. S. manufacturer of home laundry appliances and one of the largest United States manufacturers of home refrigeration and room air conditioning equipment and dishwashers. The Company estimates that during 1996 with respect to United States manufacturers, there were approximately five manufacturers of home laundry appliances, 10 manufacturers of room air conditioning equipment, five manufacturers of home refrigeration equipment, and four manufacturers of dishwashers. Competition in the North American major home appliance business is based on a wide variety of factors, including principally product features, price, product quality and performance, service, warranty, advertising, and promotion. The Company believes that Whirlpool Europe, in terms of units sold annually, is one of the three largest manufacturers and marketers of major home appliance products in Europe. The Company estimates that during 1996 there were approximately 35 European manufacturers of major home appliances, the majority of which manufacture a limited range of products for a specific geographic region. In recent years, there has been significant merger and acquisition activity as manufacturers seek to broaden product lines and expand geographic markets, and the Company believes that this trend will continue. The Company believes that, with Whirlpool Europe, it is in a favorable position relative to its competitors because it has an experienced European sales network, balanced sales throughout the European market under well- recognized brand names, manufacturing facilities located in different countries, and the ability to customize its products to meet the specific needs of diverse consumer groups. Competition in the European major home appliance business is based on a wide variety of factors, including principally product features, price, product quality and performance, service, warranty, advertising, and promotion. With respect to microwave ovens, European manufacturers face competition from manufacturers in Asia, primarily Japan and South Korea. In Asia, the major domestic appliance market is characterized by rapid growth and is dominated primarily by Asian diversified industrial manufacturers whose significant size and scope of operations enable them to achieve economies of scale. Products imported from Europe and North America have a significant presence in some Asian markets. The Company estimates that during 1996 there were approximately 50 manufacturers of major home appliances competing in the Asian market. Competition in the Asian home appliance market is based on a wide variety of factors, including principally local production capabilities, product features, price, product quality, and performance. The Company believes that, together with its Brazilian affiliates, it is well-positioned in the Latin American appliance market due to its ability to offer a broad range of products under well-recognized brand names such as WHIRLPOOL and the BRASTEMP and CONSUL brand names (owned by its Brazilian affiliate and used under license) 4 to meet the specific requirements of consumers in the region. The Company estimates that during 1996 there were approximately 65 manufacturers of home appliances in the region. Competition in the Latin American home appliance business is based on a wide variety of factors, including principally product features, price, product quality and performance, service, warranty, advertising, and promotion. In Latin America there are trends toward privatization of government-owned businesses and a liberalization of investment and trade restrictions. In addition the Company's majority-owned sales company exports products to the Latin American market under the ALGOR, FIDES, and IGNIS brand names. As a result of its global expansion, the Company believes it may have a competitive advantage by reason of its ability to share engineering capabilities across regions, transfer best practices, and economically purchase raw materials and component parts in large volumes. The financial services industry is an intensely competitive business. Factors affecting competition include new entrants into a market experiencing only moderate growth and the continuing pressure to improve investment returns in the financial services industry. With respect to inventory financing, there has been a trend toward consolidation resulting in five dominant companies in the United States market. In terms of total assets, WFC is the smallest of these companies. WFC believes it has a competitive advantage due to its strong relationship with the Company and other distribution networks. In the inventory finance business, WFC's strategy is to exploit niches within the consumer durables retail market. In consumer finance, WFC utilizes the same retailer relationships to address the needs of their consumers through private label credit card programs. The consumer finance market is highly fragmented with numerous competitors, none of which has a dominant market share. EMPLOYEES The Company and its consolidated subsidiaries had approximately 48,000 employees as of December 31, 1996. OTHER INFORMATION The Company owns minority equity interests in certain Brazilian manufacturers of major home appliances and components (Multibras and Embraco) and has a controlling interest in a sales and marketing joint venture (the South American Sales Company) with Multibras. The Company has a significant minority equity interest in a major manufacturer of kitchen furniture in Germany which is also a major trade customer of the Company. The Company also has a majority interest in a joint venture company in Argentina which manufactures home appliances for sale and distribution in its home and surrounding markets. In China, the Company has majority interests in joint venture companies that manufacture microwave ovens, refrigeration products, air conditioners and automatic washing machines for sale and distribution in their home countries and for export. In India, the Company has a majority interest in a company that produces refrigeration products and washing machines for the Indian market and for export to the rest of Asia. The Company also has minority equity interests in a Mexican manufacturer of home appliances and components and a Taiwanese marketer and distributor of home appliances. In China, the Company has a minority equity interest in a compressor manufacturing joint venture between its Brazilian affiliate and a company in China which manufactures refrigeration products and is a joint venture affiliate of the Company. For additional information regarding the Company's affiliated companies, see the discussion contained under Note 5 of the Notes to Consolidated Financial Statements in the Annual Report which is incorporated herein by reference. In addition, the Company furnishes engineering, manufacturing and marketing assistance to certain foreign manufacturers of home laundry and refrigeration equipment and other major home appliances for negotiated fees. The Company's interests outside the United States and Western Europe are subject to risks which may be greater than or in addition to those risks currently present in the United States and Western Europe. Such risks may include high inflation, the need for governmental approval of and restrictions on certain financial and other 5 corporate transactions and new or continued business operations, government price controls, restrictions on the remittance of dividends, interest, royalties, and other payments, and the convertibility of local currencies, restrictions on imports and exports, duties, political and economic developments and instability, the possibility of expropriation, uncertainty as to the enforceability of commercial rights and trademarks, and various types of local participation in ownership. In Brazil, the Company's minority equity interests earned profits in 1995 and 1996 due to lower interest rates, availability of consumer credit, higher purchasing power in certain market segments, cost control, productivity improvements, and an increase in consumer demand. However, issues such as economic volatility and exchange rate changes continue to affect consumer purchasing power and the appliance industry as a whole. The Company is generally not dependent on any one source for raw materials or purchased components essential to its business. In those areas where a single supplier is used, alternative sources are generally available and can be developed within the normal manufacturing environment, although some unanticipated costs may be incurred in transitioning to a new supplier where a prior single supplier is abruptly terminated. While there are pricing pressures on some materials and significant demand for certain components, it is believed that such raw materials and components will be available in adequate quantities to meet anticipated production schedules. Patents presently owned by the Company are considered, in the aggregate, to be important to the conduct of the Company's business. The Company is licensed under a number of patents, none of which individually is considered material to its business. The Company is the owner of a number of trademarks and the U.S. and foreign registrations thereof. The most important for its North American operations are the trademarks WHIRLPOOL, KITCHENAID, ROPER, and INGLIS. Whirlpool Europe, through its subsidiaries, is also the owner of a number of trademarks and the foreign registrations thereof. The most important trademarks owned by Whirlpool Europe are BAUKNECHT, IGNIS, and LADEN. The most important trademark for the Company's European, Asian and Latin American operations is WHIRLPOOL. The most important trademark licensed to the Company's subsidiaries is the trademark PHILIPS and the PHILIPS shield emblem, which can be used exclusively on major home appliances by such subsidiaries until July 31, 1998. In the event of a change in control of the Company, Philips ("Philips") has the option to terminate the use by the Company's subsidiaries of the trademark PHILIPS and the PHILIPS shield emblem. Pursuant to the agreement whereby the Company purchased most of Whirlpool Europe's business from Philips, except for certain limited exceptions and subject to certain phase-out provisions, neither Philips nor any subsidiary of Philips may engage directly or indirectly in the major domestic appliance business anywhere in the world until July 31, 1998. The Company believes that its business, in the aggregate, is not seasonal. Certain of its products, however, sell more heavily in some seasons than in others. In the United States, room air conditioners and dehumidifiers are generally produced and sold heavily in the first half of each year. Refrigerators have a seasonal increase in production and sales from May through September. Portable appliances and microwave ovens tend to sell more heavily in the second half of each year. In Europe, clothes dryers are sold more heavily in the winter. In Asia, with the exception of India, refrigerators tend to sell more heavily in summer, while demand for washers is greater in winter. In India, refrigerators and washers sell more frequently in the fall and winter months. Air conditioners are sold more heavily in the summer in Asia. In South America, refrigerators and room air conditioners sell more heavily in the second half of the year. Backlogs of the Company's products are filled and renewed relatively frequently in each year and are not significant in relation to the Company's annual sales. However, with respect to Asia, marked seasonality of certain product sales as noted above, combined with less efficient modes of distribution in that region, can result in significant inventory backlogs. Expenditures for Company-sponsored research and engineering activities relating to the development of new products and the improvement of existing products are included in Note 1 of the Notes to Consolidated Financial Statements in the Annual Report, which is incorporated herein by reference. Customer-sponsored research activities relating to the development of new products, services or techniques, or the improvement of existing products, services, or techniques are not material. 6 The Company's manufacturing facilities are subject to numerous laws and regulations designed to protect or enhance the environment, many of which require federal, state, or other governmental licenses and permits with regard to wastewater discharges, air emissions, and hazardous waste management. These laws are continually changing and, as a general matter, are becoming more restrictive. The Company's policy is to comply with all such laws and regulations. The Company believes that it is in compliance in all material respects with all presently applicable federal, state, local, and other provisions relating to environmental protection in the countries in which it has manufacturing operations. Capital expenditures and expenses attributable to compliance with such provisions worldwide amounted to approximately $78 million in 1994, $58 million in 1995 and $50 million in 1996. The Company anticipates that such capital expenditures and expenses will aggregate approximately $52 million in 1997. Much of the decrease from 1994 to 1996 is attributable to the phaseout of CFCs and is associated with the elimination of taxes on chloroflourocarbons ("CFCs") (which were eliminated from the Company's products in the United States prior to December 31, 1995). The Company is using a global environmental management process to assist in achieving its goals of producing environmentally compatible products, better integrating environmental considerations into the Company's product design and employee training, improving the Company's ability to report and monitor its management of environmental, health and safety affairs, and reducing its worldwide emissions of certain chemicals. The entire United States home appliance industry, including the Company, must contend with adoption of stricter governmental energy and environmental standards to be phased in over the next several years. These include the general phaseout of CFCs used in refrigeration and energy standards rulemakings for other selected major appliances produced by the Company. Enactment of Federal energy standards is uncertain at this time due to funding and rulemaking restrictions being considered for the Department of Energy by the U.S. Congress. Compliance with these various standards as they become effective will require some product redesign. In Europe, the Company met the December 31, 1994 deadline for the elimination of CFCs in its products. As in the United States, Whirlpool Europe is also dealing with anticipated regulations and rules regarding improved efficiency and energy usage for its products. The Company believes it is well positioned to field products that comply with these anticipated regulations. In most Asian countries, the Company has until 2010 to eliminate CFCs from its products. Whirlpool's Asian operations are also well positioned to meet anticipated efficiency and energy usage regulations. The Company has been notified by state and federal environmental protection agencies of its possible involvement in a number of so-called "Superfund" sites in the United States. However, the Company does not presently anticipate any material adverse effect upon the Company's earnings or financial condition arising out of the resolution of these matters or the resolution of any other known governmental proceeding regarding environmental protection matters. The Company has completed environmental assessments of its European facilities acquired as a result of the Company's purchase of the Major Domestic Appliance division of Philips. The Company does not presently anticipate any material adverse effect upon the Company's earnings or financial condition arising out of the resolution of these matters. The Company is also in the process of evaluating several recently acquired facilities in India and China. The Company does not presently anticipate any material adverse effect upon the Company's earnings or financial condition from the environmental condition of these facilities. 7 The following table sets forth the names of the Company's executive officers at December 31, 1996, the positions and offices with the Company held by them at such date, the year they first became officers, and their ages at December 31, 1996:
FIRST BECAME NAME OFFICE AN OFFICER AGE ---- ------ ------------ --- David R. Whitwam Director, Chairman of the 1983 54 Board and Chief Executive Officer William D. Marohn Director, President and 1984 56 Chief Operating Officer John P. Cunningham Executive Vice President 1995 59 and Chief Financial Officer Jeff M. Fettig Executive Vice President 1993 39 Ralph F. Hake Executive Vice President 1988 47 Robert D. Hall Executive Vice President 1992 48 Ronald L. Kerber Executive Vice President 1991 53 P. Daniel Miller Executive Vice President 1991 47
Each of the executive officers named above was elected to serve in the office indicated until the first meeting of the Board of Directors following the annual meeting of stockholders in 1997 and until his successor is chosen and qualified or until his earlier resignation or removal. Each of the executive officers of the Company has held the position set forth in the table above or has served the Company in various executive or administrative capacities for at least the past five years, except for:
NAME COMPANY/POSITION PERIOD ---- ---------------- ------ John P. Maytag Corporation 1/94 through 12/95 Cunningham Chief Financial Officer 12/66 through 12/93 IBM Vice President and Assistant General Manager-- Main Frame Division (last title held)
ITEM 2. PROPERTIES. The principal executive offices of Whirlpool Corporation are located in Benton Harbor, Michigan. At December 31, 1996, the principal manufacturing and service operations of the Company were carried on at 32 locations worldwide, 20 of which are located in 10 countries outside the United States. The Company occupied a total of approximately 35 million square feet devoted to manufacturing, service, administrative offices, warehouse, distribution, and sales space. Over 10 million square feet of such space is occupied under lease. In general, all such facilities are well maintained, suitable equipped, and in good operating condition. In 1996, manufacturing plants in Tulsa, Oklahoma, and Greenville, Ohio, were completed and became fully operational. ITEM 3. LEGAL PROCEEDINGS. As of, and during the quarter ended, December 31, 1996, there were no material pending legal proceedings to which the Company or any of its subsidiaries was a party or to which any of their property was subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There were no matters submitted to a vote of security holders in the fourth quarter of 1996. 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock is traded on the New York Stock Exchange, the Chicago Stock Exchange, and the London Stock Exchange. At March 3, 1997, the number of holders of record of the Company's common stock was approximately 10,904. High and low sales prices (as reported on the New York Stock Exchange composite tape) and cash dividends declared and paid for the Company's common stock for each quarter during the years 1995 and 1996 are set forth in Note 16 of the Notes to Consolidated Financial Statements in the Annual Report, which is herein incorporated by reference. In December 1996, Whirlpool Financial Corporation issued 250,000 shares of Series C redeemable cumulative preferred stock for an initial price of $100 per share. Goldman, Sachs & Co. ("Goldman") was the initial purchaser of all of the shares of the Series C preferred stock and such shares were purchased by Goldman and sold by the Company pursuant to a purchase agreement (the "Purchase Agreement") between Goldman and the Company. Pursuant to the terms and conditions of the Purchase Agreement, Goldman made the representation that it was purchasing the Series C shares in reliance on Rule 144A under the Securities Act and that any resale of such Series C shares would be made to institutional "accredited investors" (within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Act (Regulation D)). Goldman received $218,750 in fees, deducted from the offering proceeds, for its services in connection with the issuance of the Series C preferred Stock. ITEM 6. SELECTED FINANCIAL DATA. The selected financial data for the five years ended December 31, 1996 with respect to the following line items shown under the "Eleven Year Consolidated Statistical Review" in the Annual Report is incorporated herein by reference and made a part of this report: Total revenues; earnings from continuing operations before accounting change; earnings from continuing operations before accounting change per share of common stock; dividends paid per share of common stock; total assets; and long-term debt. See the material incorporated herein by reference in response to Item 7 of this report for a discussion of the effects on such data of business combinations and other acquisitions, disposition and restructuring activity, restructuring costs, accounting changes, and earnings of foreign affiliates. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Management's Discussion and Analysis of Results of Operations and Financial Condition in the Annual Report is incorporated herein by reference and made a part of this report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company in the Annual Report are incorporated herein by reference and made a part of this report. Supplementary financial information regarding quarterly results of operations (unaudited) for the years ended December 31, 1996 and 1995 is set forth in Note 16 of the Notes to Consolidated Financial Statements. For a list of financial statements and schedules filed as part of this report, see the "Index to Financial Statements and Financial Statement Schedule(s)" beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information with respect to directors of the Company is incorporated herein by reference to the information under the caption "Directors and Nominees for Election as Directors" in the Company's proxy statement for the 1997 annual meeting of stockholders (SEC File No. 1-3932) (the "Proxy Statement"). Information with respect to executive officers of the Company is set forth in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION. Information with respect to compensation of executive officers and directors of the Company is incorporated herein by reference to the information under the captions "Executive Compensation" and "Compensation of Directors" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP. Information with respect to security ownership by the only person(s) known to the Company to beneficially own more than 5 percent of the Company's stock and by each director of the Company and all directors and elected officers of the Company as a group is incorporated herein by reference to the information under the caption "Security Ownership" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this report: 1. The financial statements listed in the "Index to Financial Statements and Financial Statement Schedules." 2. The financial statement schedule listed in the "Index to Financial Statements and Financial Statement Schedules." 3. The exhibits listed in the "Index to Exhibits." (b) Reports on Form 8-K filed during the fourth quarter of 1996. 1. None. (c) Exhibits. 1. The following exhibits are included herein: (11) Computation of per share earnings. (12) Computation of the ratios of earnings to fixed charges. (27) Financial Data Schedule. (99) Audited Consolidated Financial Statements of Multibras S.A. Electrodomesticos and subsidiaries. 2. The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules. The response to this portion of Item 14 is submitted as a separate section of this report. 10 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. Whirlpool Corporation (Registrant) /s/ John P. Cunningham By: _________________________________ John P. Cunningham(Principal Financial Officer) Executive Vice President and Chief Financial Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- David R. Whitwam* Director, Chairman of the ____________________________________ Board and Chief Executive David R. Whitwam Officer (Principal Executive Officer) William D. Marohn* Director, and Vice Chairman ____________________________________ of the Board William D. Marohn John P. Cunningham* Executive Vice President and ____________________________________ Chief Financial Officer John P. Cunningham (Principal Financial Officer) Robert G. Thompson* Vice President and ____________________________________ Controller (Principal Robert G. Thompson Accounting Officer) Robert A. Burnett* Director ____________________________________ Robert A. Burnett Herman Cain* Director ____________________________________ Herman Cain Allan D. Gilmour* Director ____________________________________ Allan D. Gilmour March 21, 1997 Kathleen J. Hempel* Director ____________________________________ Kathleen J. Hempel Arnold G. Langbo* Director ____________________________________ Arnold G. Langbo Miles L. Marsh* Director ____________________________________ Miles L. Marsh Philip L. Smith* Director ____________________________________ Philip L. Smith Paul G. Stern* Director ____________________________________ Paul G. Stern Janice D. Stoney* Director ____________________________________ Janice D. Stoney
/s/ Daniel F. Hopp Attorney-in-Fact *By: __________________________ Daniel F. Hopp 11 ANNUAL REPORT ON FORM 10-K ITEMS 14(A) (1) AND (2) AND 14(D) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE(S) YEAR ENDED DECEMBER 31, 1996 WHIRLPOOL CORPORATION AND CONSOLIDATED SUBSIDIARIES The following consolidated financial statements of the registrant and its consolidated subsidiaries, set forth in the Annual Report, are incorporate herein by reference in Item 8: Consolidated balance sheets--December 31, 1996 and 1995 Consolidated statements of earnings--Three years ended December 31, 1996 Consolidated statements of cash flows--Three years ended December 31, 1996 Notes to consolidated financial statements The following reports of independent auditors and consolidated financial statement schedules of the registrant and its consolidated subsidiaries are submitted herewith in response to Items 14(a) (2) and 14(d):
PAGE ---- Report of Ernst & Young, Independent Auditors........................ F-2 Reports of Price Waterhouse, Independent Auditors.................... F-3 Schedule II--Valuation and Qualifying Accounts....................... F-9 The following exhibits are included herein: Exhibit 11--Computation of Earnings Per Share........................ F-10 Exhibit 12--Ratio of Earnings to Fixed Charges....................... F-11 Exhibit 99--Audited Consolidated Financial Statements of Multibras S.A. Electrodomesticos and Subsidiaries as of and for the Years Ended December 31, 1996 and 1995............................................................ F-13
Individual financial statements of the registrant's affiliated foreign companies, other than affiliated Brazilian companies, accounted for by the equity method, have been omitted since no such company individually constitutes a significant subsidiary. Summarized financial information relating to the affiliated companies is set forth in Note 5 of the Notes to Consolidated Financial Statements incorporated by reference herein. Certain schedules for which provisions are made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. F-1 [LETTERHEAD ERNST & YOUNG LLP] REPORT OF INDEPENDENT AUDITORS The Stockholders and Board of Directors Whirlpool Corporation Benton Harbor, Michigan We have audited the consolidated financial statements of Whirlpool Corporation listed in the Index at Item 14(a)(1) of the annual report on Form 10-K of Whirlpool Corporation for the year ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These financial statements and schedule are the responsibility of Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the financial statements of the Brazilian affiliates used as the basis for recording the Company's equity in their net earnings, as presented in Note 5 to the consolidated financial statements. The financial statements of those affiliates were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amount included for the Brazilian affiliates, is based on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Whirlpool Corporation at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. [LOGO SIGNATURE Ernst & Young LLP] Chicago, Illinois January 20, 1997 F-2 REPORT OF INDEPENDENT ACCOUNTANTS January 22, 1997 To the Board of Directors and Stockholders Brasmotor S.A. We have audited the accompanying consolidated balance sheets of Brasmotor S.A. and its subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of earnings, of movement in stockholders' equity and of cash flows for the years then ended, expressed in U.S. dollars. Such audits were made in conjunction with our audits of the financial statements expressed in local currency on which we issued an unqualified opinion dated January 22, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Whirlpool Argentina S.A. used as the basis for recording the Company's equity in its net earnings, as presented in Note 4 to the consolidated financial statements. The financial statements of that affiliate were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Whirlpool Argentina S.A. (Note 4), is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As stated in Note 1, Whirlpool Corporation has prescribed that accounting principles generally accepted in the United States of America be applied in the preparation of the consolidated financial statements of Brasmotor S.A. and its subsidiaries to be included in Whirlpool's consolidated financial statements. Brazil has a highly inflationary economy. Accounting principles generally accepted in the United States of America require that financial statements of a company denominated in the currency of a country with a highly inflationary economy be remeasured into a more stable currency unit for purposes of consolidation. Accordingly, the accounts of Brasmotor S.A. and its Brazilian subsidiaries, which are maintained in reais, were remeasured and adjusted into U.S. dollars for the financial statements prepared in accordance with accounting principles generally accepted in the United States of America on the bases stated in Note 1. F-3 In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements expressed in U.S. dollars audited by us are presented fairly, in all material respects, on the bases stated in Note 1 and discussed in the preceding paragraph. Price Waterhouse Auditors Independents CRC 2SP000160/O-5 Carlos Roberto Asciutti Partner Contador CRC 1SP145670/O-1 F-4 REPORT OF INDEPENDENT ACCOUNTANTS January 22, 1997 To the Board of Directors and Stockholders Empresa Brasileira de Compressores S.A.--EMBRACO We have audited the accompanying consolidated balance sheets of Empresa Brasileira de Compressores S.A.--EMBRACO and its subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of earnings, of movement in stockholders' equity and of cash flows for the years then ended, expressed in U.S. dollars. Such audits were made in conjunction with our audits of the financial statements expressed in local currency on which we issued an unqualified opinion dated January 22, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As stated in Note 1, Whirlpool Corporation has prescribed that accounting principles generally accepted in the United States of America be applied in the preparation of the consolidated financial statements of Empresa Brasileira de Compressores S.A.--EMBRACO and its subsidiaries to be included in Whirlpool's consolidated financial statements. Brazil has a highly inflationary economy. Accounting principles generally accepted in the United States of America require that financial statements of a company denominated in the currency of a country with a highly inflationary economy be remeasured into a more stable currency unit for purposes of consolidation. Accordingly, the accounts of Empresa Brasileira de Compressores S.A.--EMBRACO and its Brazilian subsidiaries, which are maintained in reais, were remeasured and adjusted into U.S. dollars, for the purpose of the financial statements prepared in accordance with accounting principles generally accepted in the United States of America on the bases stated in Note 1. F-5 In our opinion, the consolidated financial statements expressed in U.S. dollars audited by us are presented fairly, in all material respects, on the bases stated in Note 1 and discussed in the preceding paragraph. Price Waterhouse Auditores Independentes CRC 2SP000160/O-5 "S" SC Carlos Roberto Asciutti Partner Contador CRC 1SP145670/O-1 "S" SC F-6 REPORT OF INDEPENDENT ACCOUNTANTS January 22, 1997 To the Board of Directors and Stockholders Multibras S.A. Electrodomesticos We have audited the accompanying consolidated balance sheets of Multibras S.A. Eletrodomesticos and its subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of earnings, of movement in stockholders' equity and of cash flows for the years then ended, expressed in U.S. dollars. Such audits were made in conjunction with our audits of the financial statements expressed in local currency on which we issued an unqualified opinion dated January 22, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As stated in Note 1, Whirlpool Corporation has prescribed that accounting principles generally accepted in the United States of America be applied in the preparation of the consolidated financial statements of Multibras S.A. Eletrodomesticos and its subsidiaries to be included in Whirlpool's consolidated financial statements. Brazil has a highly inflationary economy. Accounting principles generally accepted in the United States of America require that financial statements of a company denominated in the currency of a country with a highly inflationary economy be remeasured into a more stable currency unit for purposes of consolidation. Accordingly, the accounts of Multibras S.A. Eletrodomesticos and its Brazilian subsidiaries, which are maintained in reais, were remeasured and adjusted into U.S. dollars for the financial statements prepared in accordance with accounting principles generally accepted in the United States of America on the basics stated in Note 1. F-7 In our opinion, the consolidated financial statements expressed in U.S. dollars audited by us are presented fairly, in all material respects, on the bases stated in Note 1 and discussed in the preceding paragraph. Price Waterhouse Auditores Independentes CRC 2SP000160/O-5 Carlos Roberto Asciutti Partner Contador CRC ISP145670/O-1 F-8 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS WHIRLPOOL CORPORATION AND SUBSIDIARIES YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (MILLIONS OF DOLLARS)
COL. A COL. B COL. C COL. D COL. E ------ --------- ------------------- ------------ ------- ADDITIONS ------------------- (1) (2) BALANCE CHARGED CHARGED BALANCE AT TO COSTS TO OTHER AT END BEGINNING AND ACCOUNTS-- DEDUCTIONS-- OF DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD ----------- --------- -------- ---------- ------------ ------- Year Ended December 31, 1996: Allowances for doubtful accounts--trade receivables.............. $ 39 $ 15 $ 9(A) $ 45 ==== ==== ==== ==== Allowances for doubtful accounts--financing receivables and leases... $ 42 $ 48 $ 40(B) $ 50 ==== ==== ==== ==== Accrued expenses-- restructuring costs...... $ 70 $ 30 $ 68(C) $ 32 ==== ==== ==== ==== Year Ended December 31, 1995: Allowances for doubtful accounts--trade receivables.............. $ 38 $ 16 $ 15(A) $ 39 ==== ==== ==== ==== Allowances for doubtful accounts--financing receivables and leases... $ 46 $ 34 $ 38(B) $ 42 ==== ==== ==== ==== Accrued expenses-- restructuring costs...... $175 $-- $105(C) $ 70 ==== ==== ==== ==== Year Ended December 31, 1994: Allowances for doubtful accounts--trade receivables.............. $ 36 $ 13 $ 11(A) $ 38 ==== ==== ==== ==== Allowances for doubtful accounts--financing receivables and leases... $ 49 $ 22 $ 25(B) $ 46 ==== ==== ==== ==== Accrued expenses-- restructuring costs...... $ 33 $250 $108(C) $175 ==== ==== ==== ====
- - -------- Note A--The amounts represent accounts charged off, less recoveries of $7 in 1996, $5 in 1995 and $1 in 1994, and translation adjustments. Note B--The amounts represent accounts charged off, less recoveries of $3 in 1996 and 1995 and $2 in 1994. Note C--Includes cash payments for employee severance and related costs, lease terminations, facility dispositions and other cash costs; write-down of facilities, equipment and other assets; and translation adjustments. F-9 EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE WHIRLPOOL CORPORATION AND SUBSIDIARIES (ALL AMOUNTS IN MILLIONS EXCEPT EARNINGS PER SHARE)
1996 1995 1994 ------ ------ ------ Primary: Average Shares Outstanding............................... 74.3 73.9 74.2 Treasury Stock Method (a): Stock Options.......................................... 0.5 0.6 1.0 Restricted Stock....................................... 0.3 0.3 0.3 ------ ------ ------ Average Shares Outstanding............................... 75.1 74.8 75.5 ====== ====== ====== Net Earnings............................................. $155.8 $209.4 $158.3 ====== ====== ====== Earnings Per Share....................................... $ 2.08 $ 2.80 $ 2.10 ====== ====== ====== Fully Diluted: Average Shares Outstanding............................... 74.3 73.9 74.2 Treasury Stock Method (b): Stock Options.......................................... 0.6 0.9 1.2 Restricted Stock....................................... 0.3 0.3 0.3 Assumed Conversion of Debt............................... 2.2 2.2 2.2 ------ ------ ------ Average Shares Outstanding................................. 77.4 77.3 77.9 ====== ====== ====== Net Earnings............................................. $155.8 $209.4 $158.3 Interest Expense, or Convertible Debt, net of tax........ 4.5 4.2 4.3 ------ ------ ------ Fully Diluted Net Earnings............................... $160.3 $213.6 $162.6 ====== ====== ====== Earnings Per Share....................................... $ 2.07 $ 2.76 $ 2.09 ====== ====== ======
- - -------- (a) Using the average market price per share of stock for the period. (b) Using the greater of the average market price per share of stock for the period or the market price per share of stock at the end of the period. F-10 EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1995 ------------------------------- APPLIANCE FINANCIAL WHIRLPOOL BUSINESS SERVICES CORPORATION --------- --------- ----------- (MILLIONS OF DOLLARS) Pretax earnings................................ $214.0 $ 28 $242 Portion of rents representative of the interest factor........................................ 21 1 22 Interest on indebtedness....................... 128 79 207 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 4 4 ------ ---- ---- Adjusted income................................ $ 364 $112 $476 ====== ==== ==== FIXED CHARGES - - ------------- Portion of rents representative of the interest factor........................................ $ 21 $ 1 $ 22 Interest on indebtedness....................... 128 79 207 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 4 4 ------ ---- ---- $ 150 $ 84 $234 ====== ==== ==== Ratio of earnings to fixed charges............. 2.4 1.3 2.0 ====== ==== ====
F-11 EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1996 ------------------------------- APPLIANCE FINANCIAL WHIRLPOOL BUSINESS SERVICES CORPORATION --------- --------- ----------- (MILLIONS OF DOLLARS) Pretax earnings................................ $100 $ 30 $130 Portion of rents representative of the interest factor........................................ 17 1 18 Interest on indebtedness....................... 154 81 235 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 4 4 ---- ---- ---- Adjusted income................................ $272 $116 $388 ==== ==== ==== FIXED CHARGES - - ------------- Portion of rents representative of the interest factor........................................ $ 17 $ 1 $ 18 Interest on indebtedness....................... 154 81 235 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 4 4 ---- ---- ---- $172 $ 86 $258 ==== ==== ==== Ratio of earnings to fixed charges............. 1.6 1.3 1.5 ==== ==== ====
F-12 EXHIBIT 99 Multibras S.A. Eletrodomesticos and Its Subsidiaries Consolidated Financial Statements at December 31, 1996 and 1995 and Report of Independent Accountants F-13 Multibras S.A. Eletrodomesticos and its subsidiaries Consolidated Balance Sheet at December 31 In thousands of U.S. dollars - - --------------------------------------------------------------------------------
Assets 1996 1995 --------- --------- Current assets Cash and equivalents 524,740 350,961 Trade receivables 308,120 243,557 Inventories 300,664 237,112 Other assets 87,775 73,588 --------- --------- 1,221,299 905,218 --------- --------- Non-current assets Deferred income taxes 59,150 37,387 Intangibles, net 11,414 12,528 Investments in affiliated companies 36,920 33,073 Sundry investments and other assets 35,772 32,479 --------- --------- 143,256 115,467 --------- --------- Property, plant and equipment 606,604 554,364 --------- --------- 1,971,159 1,575,049 ========= =========
Liabilities 1996 1995 --------- --------- Current liabilities Short-term debt 265,789 203,158 Accounts payable 156,317 152,844 Employee compensation 71,672 62,534 Income taxes 51,452 25,405 Product warranty 24,032 16,326 Other taxes payable 43,947 22,546 Other accrued expenses 53,268 28,822 Dividends 37,669 16,865 --------- --------- 704,146 528,500 --------- --------- Long-term liabilities Long-term debt 182,447 172,483 Deferred income taxes 25,720 24,590 Employees' severance benefits 44,210 27,613 Other liabilities 27,888 33,342 --------- --------- 280,265 258,028 --------- --------- Commitments and contingencies (Note 10) Minority interests 161,717 145,040 --------- --------- Stockholders' equity Capital stock 431,230 429,038 Retained earnings 393,801 214,443 --------- --------- 825,031 643,481 --------- --------- 1,971,159 1,575,049 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-14
Multibras S.A. Eletrodomesticos and its subsidiaries Consolidated Statement of Earnings Years Ended December 31 In thousands of U.S. dollars (except per-share amounts) - - -------------------------------------------------------------------------------------------- 1996 1995 ---------- ----------- Net sales 2,528,327 2,138,389 Cost of products sold (1,786,359) (1,609,597) Selling and administrative expenses (418,000) (358,633) --------- --------- Operating profit 323,968 170,159 --------- --------- Interest expense (38,338) (64,819) Export incentive credits 38,547 Interest income and other, net 50,055 87,788 --------- --------- 11,717 61,516 --------- --------- Earnings before tax, equity earnings and minority interest 335,685 231,675 Income taxes Current (118,786) (71,891) Deferred 22,345 (2,664) Tax incentives 17,026 15,026 --------- --------- Income before equity earnings and minority interest 256,270 172,146 Equity in earnings of affiliated companies 6,307 6,638 Minority interest (19,429) (30,517) --------- --------- Net earnings 243,148 148,267 ========= ========= Earnings per thousand shares - US$ 220.79 134.63 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-15 Multibras S.A. Eletrodomesticos Statement of Movement in Stockholders' Equity In thousands of U.S. dollars (except per-share amounts) - - --------------------------------------------------------------------------------
Retained Capital stock earnings ------------- ------------- At December 31, 1994 429,038 93,084 Net earnings for the year 148,267 Dividends Interim (US$ 12.73 per thousand shares) (14,023) Final (US$ 11.70 per thousand shares) (12,885) ------------- ------------- At December 31, 1995 429,038 214,443 Capitalization of retained earnings 2,192 (2,192) Net earnings for the year 243,148 Dividends Interim (US$ 23.23 per thousand shares) (25,578) Final (US$ 32.71 per thousand shares) (36,020) ------------- ------------- At December 31, 1996 431,230 393,801 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F-16 Multibras S.A. Eletrodomesticos and its subsidiaries Consolidated Statement of Cash Flows Years Ended December 31 In thousands of U.S. dollars - - --------------------------------------------------------------------------------
1996 1995 ------- ------- Cash flows from operating activities: Net earnings for the year 243,148 148,267 ------- ------- Adjustments to reconcile net earnings to net cash provided by operating activities: Loss on translation 12,369 11,288 Equity in net earnings of affiliated companies, less dividends received (4,320) (4,191) Depreciation and amortization 97,449 81,463 Gain on sale of property, plant and equipment and investments (5,818) (862) Foreign exchange gain (4,637) (5,586) Deferred income tax (22,345) 2,664 Minority interests 19,429 30,517 ------- ------- 92,127 115,293 ------- ------- Changes in assets and liabilities, net of effects of business acquisitions and dispositions: Trade receivables (82,906) (128,182) Inventories (63,552) (82,843) Other assets (19,552) (30,313) Long-term assets 9,796 7,917 Accounts payable 13,752 47,221 Other payables and accruals 101,011 94,882 ------- ------- (41,451) (91,318) ------- ------- Total adjustments 50,676 23,975 Net cash provided by operating activities 293,824 172,242 ------- -------
F-17
Multibras S.A. Eletrodomesticos and its subsidiaries Consolidated Statement of Cash Flows Years Ended December 31 In thousands of U.S. dollars (continued) - - ------------------------------------------------------------------------------------------- 1996 1995 -------- -------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment and investments and other long-term assets disposals 26,867 15,267 Net additions to property, plant and equipment (157,918) (134,558) Increase in investments in affiliated companies and sundry investments, including goodwill (19,328) (671) -------- -------- Net cash used in investing activities (150,379) (119,962) -------- -------- Cash flows from financing activities: Short-term debt 78,223 133,536 Net increase in long-term debt 21,765 55,940 Dividends paid (38,463) (30,966) Dividends to minority interests (6,069) (3,520) Increase in minority interests 986 13,919 -------- -------- Net cash provided by financing activities 56,442 168,909 -------- -------- Effect of exchange rate changes on cash (26,108) (65,243) Net increase in cash and equivalents 173,779 155,946 Cash and equivalents at beginning of year 350,961 195,015 -------- -------- Cash and equivalents at end of year 524,740 350,961 ======== ======== Supplemental disclosures of cash flow information Cash paid during the year for Interest 27,330 21,189 Income taxes 67,465 37,844
The accompanying notes are an integral part of these consolidated financial statements F-18 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated ------------------------------------------------------------------------ 1 Summary of Principal Accounting Policies (a) Nature of operations The Company is the leading Brazilian manufacturer and marketer of home appliances. The majority of its production is sold in the local market. The Company was formed in 1994 as a result of the merger of three companies under common control with consolidated assets of US$ 1,176,441, net sales of US$ 1,506,299 and net earnings of US$ 135,729 at, and for the year ended, December 31, 1994. (b) Bases of consolidation The consolidated financial statements include the financial statements of Multibras S.A. Eletrodomesticos and all majority-owned subsidiaries. Investments in affiliated companies are accounted for by the equity method. All intercompany receivables and payables, revenues and expenses, unrealized profits and losses and investments in directly or indirectly owned subsidiary companies have been eliminated. The amounts of net earnings and stockholders' equity attributed to minority stockholders are separately stated in the financial statements. (c) Bases of adjustment and remeasurement into U.S. dollars The Company is incorporated in Brazil and its books and records and those of its Brazilian subsidiaries are kept in reais and in accordance with Brazilian generally accepted accounting principles. The financial statements expressed in U.S. dollars conform with accounting principles generally accepted in the United States of America and reflect the adjustment and remeasurement into U.S. dollars on the bases set out in (i) and (ii) below: (i) Adjustments The following principal adjustments have been reflected in the U.S. dollar financial statements: . Present value adjustment of short-term receivables and payables. . Interest incurred on financing of property, plant and equipment under construction is capitalized in accordance with FAS 34. . Income taxes are accounted for in accordance with FAS 109. . Pension expense is recognized in accordance with FAS 87. F-19 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated - - -------------------------------------------------------------------------------- (ii) Remeasurement Operations in hyperinflationary economy - Brazil The basis of remeasurement of local currency into U.S. dollars is summarized as follows: Basis of remeasurement ---------------------- Inventories, intangibles, investments in affiliated Historical exchange rates companies, sundry investments, property, plant and equipment, accumulated depreciation, capital stock and retained earnings All other assets and liabilities Closing exchange rate of R$ 1,0395 (1995 - R$ 0.9726) per US$ 1 Income and expense, except for cost of products Accumulation of the monthly operations, sold, depreciation, amortization, and equity in each translated at the respective month- earnings of affiliated companies, which are at end exchange rate, resulting in an individual historical rates weighted average exchange rate for each income and expense
Price-level restatements, which were required to be recorded in the local books up to December 31, 1995 to partially recognize the effects of inflation, do not receive a U.S. dollar equivalent on remeasurement, except insofar as the price-level restatements affect the computation of income taxes. Had the undistributed retained earnings reflected in the official accounting records at December 31, 1996 and 1995 of R$ 322.711 thousand and R$ 153.623 thousand (shown in the accompanying financial statements at US$ 393.801 and US$ 214,443), been expressed in U.S. currency at the prevailing exchange rate on those dates, the amounts thereof would have been US$ 310.448 and US$ 157.951. The resulting remeasurement gains and losses are classified in the statement of earnings as detailed in Note 12. Operations in non-hyperinflationary economies - foreign Balance sheet items Closing exchange rate Income and expenses Exchange rate prevailing at the time income is earned and expense is incurred Translation gains and losses are taken directly to equity.
F-20 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated --------------------------------------------------------------------------- (d) Cash and equivalents Cash and equivalents are carried at cost plus interest and include highly liquid financial investments with original maturities of 90 days or less. (e) Trade receivables The Company makes substantial sales to a relatively small number of home appliance retailers, which operate nationally or regionally. Trade receivables are stated at estimated net realizable values. An allowance for uncollectible accounts is provided in an amount considered to be sufficient to meet probable future losses. (f) Inventories Inventories are stated at the lower of average cost of purchase or production, replacement cost or net realizable value. (g) Property, plant and equipment Property, plant and equipment are stated at cost. Depreciation is computed on the straight-line method, over the estimated useful lives of the various classes of assets. Expenditures for maintenance and repairs are charged to income. Improvements and major renewals are capitalized. (h) Recoverability of long-lived assets On an annual basis or more frequently if circumstances require, the Company evaluates long-lived assets, including property, plant and equipment, investments and intangibles, against current and estimated undiscounted future operating income of the related businesses. No impairment losses have been recorded for any of the periods presented. Write-down of the carrying value of assets or groups of assets will be made, if appropriate. (i) Current and long-term liabilities These are adjusted for the effects of indexation or exchange rate fluctuations on the basis of the contractually agreed indexes or rates, when applicable. (j) Product warranty Provision is made currently for estimated product warranty costs, based on past experience and future expected commitments. F-21 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated ----------------------------------------------------------------------- (k) Revenue and expense recognition Sales revenues are recognized when products are shipped or services are rendered. Expenses and costs are recognized on the accrual basis. (l) Income taxes (i) Under the terms of the Government International Trade Authority (BEFIEX) fiscal incentive program, which expires in 1998, earnings from qualified export sales are subject to income tax at the rate of 6%, in the proportion that those export sales bear to total Company sales. That part of earnings not deemed, on this basis, to be eligible for a reduced tax rate is subject to income tax at the standard statutory rate. The Company also records accelerated depreciation on certain plant and equipment for tax purposes only. (ii) Pursuant to FAS 109 "Accounting for Income Taxes" the net tax charges or benefits related to (i) tax loss carryforwards available to be offset against future taxable income and (ii) tax effects of temporary differences between tax results and financial reporting results, excluding the effects of indexation recorded for tax purposes and changes in exchange rates, are recorded at the enacted tax rates at each balance sheet date. (iii) Income taxes are recorded gross of tax incentive investments and subsequently reduced by the amount of incentive investment deposits when received. (m) Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates .
2 Trade receivables 1996 1995 ------- ------- Trade receivables 442,476 354,202 Trade receivables sold with recourse (78,718) (73,614) Allowance for doubtful accounts (55,638) (37,031) ------- ------- 308,120 243,557 -------- -------
F-22 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated --------------------------------------------------------------------------- 3 Inventories
1996 1995 ------------------- Finished products and work in progress 128,736 79,261 Raw materials and others 171,928 157,851 ------------------- 300,664 237,112 -------------------
4 Investments in affiliated companies (i) The Company has direct voting interests of 36% in Multibras da Amazonia S.A., 50% in each of Sabrico Utilidades Domesticas Ltda. and Consorcio Nacional Brastemp Sabrico S/C Ltda., and other companies engaged in the manufacture of home appliances or related components. (ii) In February 1995, the subsidiary company Empresa Brasileira de Compressores S.A. - EMBRACO entered into a joint venture to produce compressors in China. The subsidiary is the majority partner of the joint venture with an interest of 52%. As of December 31, 1996, US$13,807 was invested as capital in the joint venture. The other partners in this joint venture are Whirlpool Overseas Holdings Corporation (8%) and Beijing Snowflake Eletric Appliance Group Corporation (40%). (iii)In September, 1996, the investment in Motores Eletricos Brasil S.A. was sold to a third party for US$22,026. 5 Property, plant and equipment
Annual depreciation 1996 1995 rate% -------------------------------------- Land 10,993 11,171 Buildings 165,422 156,115 4 Machinery, equipment and installations 794,830 729,037 10 to 40 Molds and tools 114,231 114,325 10 to 20 Furniture and fixtures 41,124 42,198 10 to 20 Other 36,771 38,236 6 to 20 --------------------- 1,163,371 1,091,082 Accumulated depreciation and amortization (680,309) (606,390) --------------------- 483,062 484,692 Plant and equipment - investments in progress 110,458 64,100 Advances to suppliers 13,084 5,572 --------------------- 606,604 554,364 ---------------------
Property, plant and equipment of US$3,709 are pledged in guarantee of borrowings. F-23 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated -------------------------------------------------------------------------- 6 Debt
Interest 1996 1995 ----------------------- -------------------------------- Local currency loans - Monetary correction plus Brazil interest of 12% p.a. 74,546 35,165 Foreign currency loans . U.S. dollars Interest from 8 to 12,4% p.a. 290,075 229,716 . Italian lire RIBOR plus 1.25% p.a. 83,615 110,760 -------------------------------- 448,236 375,641 Current portion (265,789) (203,158) -------------------------------- Long-term portion 182,447 172,483 --------------------------------
At December 31, 1996, the long-term portion of total long-term debt matures in the following years: 1998 51,629 1999 90,385 2000 27,210 2001 10,475 Thereafter 2,748 -------------------------------- 182,447 ---------------------------------
7 Income Tax (a) Tax rate Income taxes in Brazil include Federal income tax and social contribution (which is an additional Federal tax on income). There are no State or local income taxes in Brazil. The statutory rates applicable in each year presented were as follows (in percentage):
1996 1995 -------------------------------- Federal income tax 25% 43% Social contribution 8% 10% Adjustment to composite rate (2%) (5%) -------------------------------- Composite Federal income tax rate 31% 48% --------------------------------
The social contribution is deductible both for Federal income tax and social contribution purposes. F-24 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated -------------------------------------------------------------------------- (b) Income tax reconciliation The amount reported as income tax expense or benefit is reconciled to the statutory rates as follows:
1996 1995 --------- --------- Earnings before income tax, equity earnings and minority interest 335,685 231,675 Tax charge at statutory rates 104,062 111,204 Adjustments to derive effective rate: Effects of change in tax rates on deferred taxes. 5,826 Permanent differences 3,208 (8,028) Reduced tax rates on incetivated export sales (6,609) (12,447) Valuation allowance 3,536 1,194 Difference related to assets and liabilities remeasured at historical exchange rates that result from (i) changes in exchange rates and (ii) indexing used for Brazilian tax purposes (7,756) (23,194) --------- --------- Income taxes 96,441 74,555 --------- ---------
(c) Deferred Income Taxes The deferred tax assets (liabilities) are comprised of the following:
1996 1995 --------- --------- Differences between the tax and the book basis of certain property, plant and equipment. (20,703) (20,378) Acelerated depreciation (6,794) (4,819) Temporary differences between Brazilian tax basis and US GAAP 7,306 1,977 Tax loss carryforwards 3,536 1,194 Allowances and accruals not currently deductible 47,439 25,850 Others 6,182 10,167 ---------- --------- 36,966 13,991 Valuation allowance (3,536) (1,194) --------- --------- 33,430 12,797 --------- --------- Assets 59,150 37,387 Liabilities (25,720) (24,590) --------- --------- 33,430 12,797 --------- ---------
8 Employees' Severance Benefits As required by Italian legislation, the subsidiary Embraco Europe SrL. accrues severance benefits equal to one month's salary for every year of service of each employee. 9 Stockholders' Equity Issued and fully-paid capital stock comprises 739,465,532 common shares and 361,804,950 preferred shares with no par value. The Company's statutes establish a minimum compulsory annual dividend of 25 % of net earnings for the year in local currency, adjusted in accordance with corporate legislation, subject to the minimum dividend priority of preferred stockholders. F-25 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated -------------------------------------------------------------------------- In the statutory financial statements, retained earnings include: (i) the tax incentive investments reserve, corresponding to that portion of the income tax liability applied in tax incentive investments; and (ii) the legal reserve which must be accumulated at the rate of 5% of the statutory net earnings until the reserve reaches 20% of capital stock in local currency. At December 31,1996 these restricted reserves totalled US$ 26,079. 10 Commitments and Contingencies (a) In 1989, a subsidiary initiated civil litigation contesting responsibility for the payment of loan principal amounting to approximately US$ 39,500. This loan, which did not have appropriate board approval, was allegedly authorized at that time by the then chief executive officer and, according to the financial institution, was drawn in the subsidiary's name, although the proceeds were never recorded by the subsidiary. Simultaneously with this legal action, a police inquiry was initiated at the subsidiary's request. In view of outside legal counsel's opinion that the chances of a favorable decision in respect of this matter are very high, management considers that no provision is necessary in respect thereof, and accordingly, no liability for this contingency is recorded in the financial statements. (b) Income tax returns for the last five years remain open to examination and final acceptance by the fiscal authorities. Other taxes are also open to review for varying periods. Management does not anticipate that any major assessments would arise in the event of an examination. (c) The Company and a subsidiary have signed a contract with BEFIEX under the terms of which they are committed to jointly export products with a value of US$ 1,987,000 and to make certain minimum capital expenditures during the ten-year period ending July 1998, in compensation for benefits relating to import and other taxes. In the event of failure to comply with these conditions, the Company and the subsidiary will be subject to the repayment of tax benefits previously obtained, plus interest and fine. Management expects that they will comply with these conditions. (d) In 1995, a subsidiary obtained a favorable decision in the law courts with respect to a legal claim relative to certain export incentives, which were eliminated by the government in 1989, in the amount of US$ 38,547. This amount was realized and recognized as income by the subsidiary in 1995. In September 1995, part of this amount was contested by the fiscal authorities. No provision has been recorded with respect to this claim as management, based on the opinion of its legal advisors, believes that the probability of any loss is remote. On December 16, 1996, a favorable decision was obtained by the Company and a subsidiary with respect to additional export incentives in connection with the BEFIEX program. The final implementation of such decision is dependent on the calculation of the amount involved and approval by the court. A reasonable estimation of the amount involved cannot be made at this time. 11 Related Party Transactions A subsidiary makes substantial sales to Whirpool Corporation, a significant shareholder of the Company, and its subsidiaries at normal prices and conditions. Accounts receivable from these companies totalled US$ 6,972 and US$ 6,306 at December 31, 1996 and 1995. F-26 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated --------------------------------------------------------------------------- 12 Gains and Losses on Remeasurement The gains and losses on translation have been reclassified to the related line items in the statement of earnings as follows:
1996 1995 --------- -------- Net sales 1,481 11,947 Cost of products sold 2,260 2,311 --------- -------- 3,741 14,258 Operating expenses 5,067 4,880 Interest and other income (22,311) (31,650) Income taxes 1,134 1,224 --------- -------- Aggregate loss on remeasurement (12,369) (11,288) ========= ========
13 Pension Plan The Company and its Brazilian subsidiaries maintain both contributory and concontributory defined benefit pension plans covering substantially all employees in Brazil. The plans provide pension benefits that are based on years of service and employees' compensation during a specified period before retirement. The Company's present funding policy for these plans is to generally make the minimum annual contribution required by applicable regulations. Assets held by the plans are managed by an outside public pension fund institution, which also manages funds of other unrelated employers and guarantees a minimum annual fixed return of 4% on plan assets. Annual pension expense comprises the following components:
1996 1995 -------- ------- Service cost - benefits earned during the year 12,188 8,605 Interest cost on projected benefit obligation 7,359 5,545 Actual return on plan assets (5,318) (5,714) Net amortization 7,354 7,898 --------- ------- 21,583 16,334 --------- -------
Assumptions used in accounting for defined benefit pension plans are as follows:
% per annum above the general price index ------------- Discount rate 6.00 Rate of compensation level increase 3.75 Expected long-term rate of return on plan assets 6.00
F-27 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated --------------------------------------------------------------------------- The funded status of the pension plans is as follows:
1996 1995 --------- -------- Projected benefit obligation (140,393) (106,102) Plan assets at fair value 52,122 46,019 ---------- -------- Projected benefit obligation in excess of plan assets (88,271) (60,083) Unrecognized net loss (gain) 15,348 (3,524) Unrecognized net obligation, net of amortization 49,488 53,911 --------- -------- Accrued pension expense, included in other accrued expenses (23,435) (9,696) ========= ========
The accumulated benefit obligation, which is included in the projected benefit obligation, represents the actuarial present value of benefits attributed to employee service and compensation levels to date. At December 31, 1996 and 1995, the accumulated benefit obligation was US$ 78,333 and US$ 63,364, respectively. The vested portion was US$ 60,991 in 1996 and US$ 51,817 in 1995. 14 Fair value of financial instruments Besides cash and equivalents which are stated at cost plus accrued interest and which approximate fair value, the carrying value of the Company's other financial instruments approximates fair value at December 31, 1996 and 1995 reflecting the short-term maturity of these instruments at those dates. Based on interest rates currently available to Multibras S. A. Eletrodomesticos for bank loans with similar terms and average maturities, the fair value of long-term debt at December 31, 1996 and 1995 approximates its carrying value. Fair value estimates are made at a specific date, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. * * * F-28 ANNUAL REPORT ON FORM 10-K ITEMS 14(A)(3) AND 14(C) INDEX TO EXHIBITS YEAR ENDED DECEMBER 31, 1996 The following exhibits are submitted herewith or incorporated herein by reference in response to Items 14(a)(3) and 14(c):
NUMBER AND SEQUENTIAL DESCRIPTION PAGE OF EXHIBIT NUMBERS* ----------- ---------- 3(i) Restated Certificate of Incorporation of the Company [Incorporated by reference from Exhibit 3(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 3(ii) Amended and Restated By-laws of the Company (as amended January 23, 1995). [Incorporated by reference from Exhibit 3(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994] 4 The registrant hereby agrees to furnish to the Securities and Exchange Commission, upon request, the instruments defining the rights of holders of each issue of long-term debt of the registrant and its subsidiaries. 10(iii) (a) Whirlpool Retirement Benefits Restoration Plan (as amended January 1, 1992) [Incorporated by reference from Exhibit 10(iii)(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (b) 1979 Stock Option Plan (as amended April 28, 1987) [Incorporated by reference from Exhibit 10(iii)(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (c) Whirlpool Supplemental Executive Retirement Plan (as amended and restated effective December 31, 1993) [Incorporated by reference from Exhibit 10(iii)(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (d) Resolution adopted on December 12, 1989 by the Board of Directors of the Company adopting a compensation schedule, life insurance program and retirement benefit program for eligible Directors. [Incorporated by reference from Exhibit 10(iii)(d) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (e) Resolution adopted on December 8, 1992 by the Board of Directors of the Company adopting a Flexible Compensation Program for the Corporation's nonemployee directors. [Incorporated by reference from Exhibit 10(iii)(e) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (f) Whirlpool Corporation Deferred Compensation Plan for Directors (as amended effective January 1, 1992 and April 20, 1993) [Incorporated by reference from Exhibit 10(iii)(f) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (g) Form of Agreement providing for severance benefits for certain executive officers [Incorporated by reference from Exhibit 10(iii)(g) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (h) Whirlpool Corporation 1989 Omnibus Stock and Incentive Plan (as amended June 20, 1995) [Incorporated by reference from Exhibit 10(iii)(r) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995]
E-1
NUMBER AND SEQUENTIAL DESCRIPTION PAGE OF EXHIBIT NUMBERS* ----------- ---------- 10(iii) (i) Whirlpool Corporation Restricted Stock Value Program (Pursuant to the 1989 Whirlpool Corporation Omnibus Stock and Incentive Plan) [Incorporated by reference from Exhibit 10(iii)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (j) Whirlpool Executive Stock Appreciation and Performance Program (Pursuant to the 1989 Whirlpool Corporation Omnibus Stock and Incentive Plan) [Incorporated by reference from Exhibit (10)(iii)(j) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (k) Whirlpool Corporation Nonemployee Director Stock Ownership Plan (as amended February 20, 1996, effective April 16, 1996) [Incorporated by reference from Exhibit B to the Company's proxy statement for the 1996 annual meeting of stockholders] 10(iii) (l) Whirlpool 401(k) Plan (as amended and restated April 1, 1993) [Incorporated by reference from Exhibit 10(iii)(l) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (m) Whirlpool Performance Excellence Plan (as amended January 1, 1992 and February 15, 1994) [Incorporated by reference from Exhibit 10(iii)(m) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (n) Whirlpool Corporation Executive Deferred Savings Plan (as amended effective January 1, 1992) [Incorporated by reference from Exhibit 10(iii)(n) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993] 10(iii) (o) Whirlpool Corporation Executive Officer Bonus Plan (Effective as of January 1, 1994) [Incorporated by reference from Exhibit 10(iii)(o) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994] 10(iii) (p) Whirlpool Corporation Charitable Award Contribution and Additional Life Insurance Plan for Directors (Effective April 20, 1993) [Incorporated by reference from Exhibit 10(iii)(p) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994] 10(iii) (q) Whirlpool Corporation Career Stock Grant Program (Pursuant to the 1989 Whirlpool Corporation Omnibus Stock and Incentive Plan) [Incorporated by reference from Exhibit 10(iii)(q) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995] 10(iii) (r) Whirlpool Corporation 1996 Omnibus Stock and Incentive Plan (Effective April 25, 1996) [Incorporated by reference from Exhibit A to the Company's proxy statement for the 1996 annual meeting of stockholders] 11 Statement Re: Computation of Earnings per share 12 Statement Re: Computation of the Ratios of Earnings to Fixed Charges 13 Management's Discussion and Analysis and Consolidated Financial Statements contained in Annual Report to Stockholders for the year ended December 31, 1996 21 List of Subsidiaries 23(ii) (a) Consent of Ernst & Young 23(ii) (b) Consent of Price Waterhouse 24 Powers of Attorney 27 Financial Data Schedule 99 Audited Consolidated Financial Statements of Multibras S.A. Electrodomesticos and subsidiaries
- - -------- *This information appears only in the manually signed originals of the Form 10-K and conformed copies with exhibits. E-2 EX-11 2 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11--COMPUTATION OF EARNINGS PER SHARE WHIRLPOOL CORPORATION AND SUBSIDIARIES (ALL AMOUNTS IN MILLIONS EXCEPT EARNINGS PER SHARE)
1996 1995 1994 ------ ------ ------ Primary: Average Shares Outstanding............................... 74.3 73.9 74.2 Treasury Stock Method (a): Stock Options.......................................... 0.5 0.6 1.0 Restricted Stock....................................... 0.3 0.3 0.3 ------ ------ ------ Average Shares Outstanding............................... 75.1 74.8 75.5 ====== ====== ====== Net Earnings............................................. $155.8 $209.4 $158.3 ====== ====== ====== Earnings Per Share....................................... $ 2.08 $ 2.80 $ 2.10 ====== ====== ====== Fully Diluted: Average Shares Outstanding............................... 74.3 73.9 74.2 Treasury Stock Method (b): Stock Options.......................................... 0.6 0.9 1.2 Restricted Stock....................................... 0.3 0.3 0.3 Assumed Conversion of Debt............................... 2.2 2.2 2.2 ------ ------ ------ Average Shares Outstanding................................. 77.4 77.3 77.9 ====== ====== ====== Net Earnings............................................. $155.8 $209.4 $158.3 Interest Expense, or Convertible Debt, net of tax........ 4.5 4.2 4.3 ------ ------ ------ Fully Diluted Net Earnings............................... $160.3 $213.6 $162.6 ====== ====== ====== Earnings Per Share....................................... $ 2.07 $ 2.76 $ 2.09 ====== ====== ======
- - -------- (a) Using the average market price per share of stock for the period. (b) Using the greater of the average market price per share of stock for the period or the market price per share of stock at the end of the period. F-10 EX-12 3 STATEMENT RE: COMPUTATION OF RATIOS EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1995 ------------------------------- APPLIANCE FINANCIAL WHIRLPOOL BUSINESS SERVICES CORPORATION --------- --------- ----------- (MILLIONS OF DOLLARS) Pretax earnings................................ $214.0 $ 28 $242 Portion of rents representative of the interest factor........................................ 21 1 22 Interest on indebtedness....................... 128 79 207 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 4 4 ------ ---- ---- Adjusted income................................ $ 364 $112 $476 ====== ==== ==== FIXED CHARGES - - ------------- Portion of rents representative of the interest factor........................................ $ 21 $ 1 $ 22 Interest on indebtedness....................... 128 79 207 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 4 4 ------ ---- ---- $ 150 $ 84 $234 ====== ==== ==== Ratio of earnings to fixed charges............. 2.4 1.3 2.0 ====== ==== ====
F-11 EXHIBIT 12--RATIO OF EARNINGS TO FIXED CHARGES WHIRLPOOL CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 1996 ------------------------------- APPLIANCE FINANCIAL WHIRLPOOL BUSINESS SERVICES CORPORATION --------- --------- ----------- (MILLIONS OF DOLLARS) Pretax earnings................................ $100 $ 30 $130 Portion of rents representative of the interest factor........................................ 17 1 18 Interest on indebtedness....................... 154 81 235 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 4 4 ---- ---- ---- Adjusted income................................ $272 $116 $388 ==== ==== ==== FIXED CHARGES - - ------------- Portion of rents representative of the interest factor........................................ $ 17 $ 1 $ 18 Interest on indebtedness....................... 154 81 235 Amortization of debt expense and premium....... 1 -- 1 WFC preferred stock dividend................... -- 4 4 ---- ---- ---- $172 $ 86 $258 ==== ==== ==== Ratio of earnings to fixed charges............. 1.6 1.3 1.5 ==== ==== ====
F-12 EX-13 4 MD&A AND FINANCIAL STMTS FROM 1996 ANNUAL REPORT Management's Discussion & Analysis ---------------------------------- Results of Operations The consolidated statements of earnings summarize operating results for the last three years. This section of Management's Discussion & Analysis highlights main factors affecting changes in operating results during the three-year period. The accompanying consolidated financial statements include supplemental consolidating data reflecting the company's investment in Whirlpool Financial Corporation (WFC) on an equity basis rather than as a consolidated subsidiary. Management believes this presentation provides more meaningful information about the major home appliance and financial services businesses. Revenues Revenues were $8.7 billion in 1996, an increase of 4% over 1995. Excluding currency fluctuations, revenues were up 5% year over year due to the impact of increased volume, partially offset by unfavorable brand and product mix. North American unit volumes were up 2% over 1995, in an industry that was up nearly 5%. North American sales were up 4% due to a combination of higher pricing and volume and improved product mix. North American industry shipments are expected to be down about 3% in 1997. European unit volumes were up 11% over 1995 while the industry was down nearly 2%. European sales were up 3% compared to 1995, and were up 5% excluding currency fluctuations. Partially offsetting the impact of volume increases on sales growth were unfavorable brand and product mix, as consumer preference continued the trend toward lower-priced brands and products, without any substantial price increases during the year. European industry shipment growth is expected to be flat in 1997. Financial services revenues were up 3% in 1996 primarily reflecting growth in WFC's inventory financing portfolio, partially offset by contraction of the consumer financing and aerospace portfolios. Revenues were $8.3 billion in 1995, an increase of 3% over 1994. Excluding currency fluctuations, revenues were flat from year to year with the impact of increased volume offset by unfavorable brand and product mix. North American sales were up 1% due primarily to selective price increases, partially offset by unfavorable brand and product mix. North American unit volumes were virtually identical to those from 1994, although the regional home-appliance industry slipped by more than 1%. European revenues were up 2% compared to 1994. Excluding currency fluctuations, revenues were off 8% due primarily to a 2% decline in unit volumes and unfavorable brand and product mix. Volumes were hurt by weak demand across the region, particularly toward the end of the year and more pronounced in Germany and France, which together account for about 40% of European sales. In addition, Europe saw a slight erosion of its market share following a major sales-force reorganization. Financial services revenues were up 19% in 1995 as WFC continued to expand its core inventory and consumer financing businesses. Expenses Gross margin percentage on product sales deteriorated 1% in 1996 compared to 1995 as the North American margin improvement of 1%, stemming from improved product mix and higher pricing, was more than offset by a 5% European margin deterioration. European margins reflect customers shifting to lower margin brands and products, unfavorable currency fluctuations, delays in achieving cost targets on new products and stagnant pricing in the marketplace. Gross margin percentage on product sales deteriorated almost 2% in 1995 compared to 1994. North American margins declined about 2% in 1995 due to higher material and component costs, start-up costs associated with the production of redesigned midsize refrigerators and the difficult economic climate in Mexico, partially offset by price increases. European margins were down 1% in 1995 due to lower volumes and reduced production levels, combined with sharply higher material and component costs and an industry shift to lower-priced products, partially offset by productivity improvements, continued expense control, benefits of restructuring and currency translation. 28 Appliance selling and administrative expenses as a percent of net sales decreased slightly in 1996 compared to 1995. The expense percentage in North America decreased slightly from last year, while the European expense percentage declined 1% in 1996 primarily due to reduced selling costs, tight control over other spending. Europe also benefited from cost reductions stemming from its restructuring efforts executed during 1995. WFC selling and administrative expenses as a percent of financial services revenue increased 2% due primarily to increased provisions for the aerospace portfolio. Appliance selling and administrative expenses as a percent of net sales was higher by nearly 1% in 1995 compared to 1994. The North American expense percentage was down slightly in 1995 due to cost reduction initiatives and lower compensation costs. After excluding currency translation impact, European expenses were down compared to last year reflecting expense control efforts and benefits of restructuring. However, European expenses as a percent of net sales were up almost 2% in 1995 primarily due to decreased sales after excluding currency translation effects. Both 1995 and 1994 were affected by increased strategic spending to expand the company's presence in Asia. WFC selling and administrative expenses as a percent of financial services revenue were down nearly 1% as WFC successfully executed its strategy of supporting the inventory and consumer finance business. WFC's financial services interest expense as a percent of the related revenue was essentially flat compared to 1995; however, it was up in 1995 compared to 1994 due to higher interest rates in 1995. Restructuring costs of $30 million in 1996 consist of charges to streamline a North American refrigeration operation, transfer Asian research and development to manufacturing locations and regional technology centers and relocate the Asian headquarters function to Hong Kong. The restructuring is expected to improve the company's long-term cost competitiveness and profitability in the North American refrigeration market and in Asia, with annual cost savings of $37 million when fully implemented. Refer to Note 10 to the accompanying consolidated financial statements. In the third quarter of 1994, the company sold its minority interest in Matsushita Floor Care Company (MFCC), a vacuum cleaner manufacturer, resulting in a $26 million pretax gain. The company also sold its European compressor operation in the second quarter of 1994 resulting in a $34 million pretax gain. Refer to "Cash Flows - Investing Activities." Restructuring costs of $250 million for 1994 consist of charges to consolidate and reorganize the company's European sales, marketing and support functions to better serve dealers by trade channel rather than by country; rationalize European customer services and manufacturing operations; close two North American manufacturing facilities; and further consolidate and rationalize other North American operations. Refer to Note 10 to the accompanying consolidated financial statements. Other Income and Expense Consolidated interest and sundry expense for 1996 was down slightly compared to 1995 due to a gain on the disposal of investments, while the change from 1995 to 1994 primarily reflects foreign currency losses. However, the overall impact of currency fluctuations in 1995 was not significant due to offsetting foreign currency gains reported elsewhere in the statement of earnings. Appliance business interest expense increased significantly in both 1996 and 1995 from the prior year due to higher borrowing levels (refer to "Cash Flows - Financing Activities") and higher interest rates. Income Taxes The consolidated effective tax rate was 62% in 1996 compared to 41% in 1995 and 60% in 1994 (57% and 40%, excluding the effect of restructuring and business dispositions, in 1996 and 1994). The higher effective tax rate in 1996 compared to 1995 is primarily due to higher unbenefited losses in Asia, the relatively larger impact permanent items have on the effective tax rate because of lower net earnings and an unfavorable mix of pretax earnings and losses by country, partially offset by tax credits relating to prior years. The increase in the provision in 1995 compared to 1994, excluding the effect of restructuring and business dispositions, is primarily due to 29 Management's Discussion & Analysis ---------------------------------- the relatively larger impact permanent items have on the effective tax rate because of lower net earnings nearly offset by favorable settlements of prior year tax returns. The effective rate in 1994 reflects the impact of the 1994 restructuring charge, for which a full tax benefit was not recognized, and a 1994 tax charge associated with the sale of the European compressor operation partially offset by a 1994 tax benefit associated with the sale of MFCC. Refer to Note 11 to the accompanying consolidated financial statements. Earnings before Equity Earnings and Other Items Earnings before equity earnings and other items were $49 million, $142 million and $116 million in 1996, 1995 and 1994. Excluding the impact of restructuring and business dispositions, earnings before equity earnings and other items were $68 million, $142 million and $290 million in 1996, 1995 and 1994. Equity in Affiliated Companies Equity earnings were $93 million, $72 million and $59 million in 1996, 1995 and 1994. The company's Brazilian affiliates generated equity earnings of $92 million, $70 million and $39 million in 1996, 1995 and 1994, reflecting significant on-going growth in the Brazilian appliance industry in 1996 and 1995, driven by improved availability of consumer credit and lower interest rates. Results in 1995 were also favorably affected by certain nonrecurring tax benefits, including $17 million of excise tax credits and the consequences of the May 1994 merger of two of the Brazilian affiliates, Brastemp S.A. and Consul S.A., into a new entity, Multibras S.A. The merger resulted in operating efficiencies as an outcome of consolidating selling and administrative functions, improving utilization of prior year tax losses and more flexibility managing brands and products. The company's Mexican affiliate equity losses were $3 million in 1996 as compared to break-even equity earnings in 1995 and equity earnings of $16 million in 1994. Equity earnings or losses included foreign exchange gains from devaluation of the Mexican peso of $3 million, $25 million and $12 million in 1996, 1995 and 1994. Offsetting the significant reduction in foreign exchange gain in 1996, compared to 1995, were higher shipment volumes, in spite of Mexican industry declines, lower financing costs stemming from the mid-1996 debt refinancing and tax benefits relating to prior years. In 1995, reduced shipments and higher financing costs resulting from difficult economic conditions in Mexico were partially offset by cost reductions and translation gains. Economic volatility and changes in government economic policy (including those affecting exchange rates and tariffs) continue to affect consumer purchasing power and the appliance industry as a whole in Mexico, Brazil and the entire Latin American region. Net Earnings In 1996, the company recorded an after-tax restructuring charge of $19 million or $.25 per share. In 1994, the company recorded an after-tax restructuring charge of $192 million or $2.54 per share. Business dispositions in 1994 resulted in an after- tax gain of $18 million or $.24 per share. Absent all restructuring and business dispositions, net earnings were $175 million, $209 million and $332 million in 1996, 1995 and 1994. Corresponding earnings per share were $2.33, $2.80 and $4.40 in 1996, 1995 and 1994. Cash Flows The statements of cash flows reflect the changes in cash and equivalents for the last three years by classifying transactions into three major categories: operating, investing and financing activities. Operating Activities The Company's main source of liquidity is cash from operating activities consisting of net earnings from operations adjusted for non-cash operating items such as depreciation and changes in operating assets and liabilities such as receivables, inventories and payables. 30 Cash provided by operating activities was $555 million, $377 million and $449 million in 1996, 1995 and 1994. The increase in 1996 from the prior year is primarily due to favorable changes in working capital and other operating accounts and lower restructuring spending, partially offset by lower earnings. The decrease in 1995 from the prior year is due primarily to lower earnings, excluding the 1994 effects of restructuring, and business dispositions and 1995 restructuring spending partially offset by favorable accounts receivable performance. Investing Activities The principal recurring investing activities are property additions and investments in and collection of financing receivables and leases. Net property additions were $336 million, $483 million and $418 million in 1996, 1995 and 1994. These expenditures were primarily for equipment and tooling related to product improvements, more efficient production methods and equipment replacement for normal wear and tear. Investment in the financial services business resulted in $265 million of net WFC financing receivables originated in 1996 compared to $256 million in 1995 and $18 million of net cash receipts in 1994. In 1994, the company began construction of a new $100 million cooking products facility in Tulsa, Okla., to manufacture freestanding gas and electric ranges for the North American appliance market. The facility was completed as planned and began manufacturing product in April 1996. Refer to Note 2 to the accompanying consolidated financial statements for discussion of business dispositions and acquisitions during the last three years. Financing Activities Dividends to shareholders totaled $101 million, $100 million and $90 million in 1996, 1995 and 1994. The company's net borrowings increased by $158 million in 1996, excluding currency translation and $25 million of borrowings assumed in acquisitions, primarily to fund property additions and origination of financing receivables. The increase included a $244 million issuance of 7 3/4% debentures maturing in 2016. During 1996, WFC issued $25 million of preferred stock with the proceeds used to reduce commercial paper. Refer to Note 6 to the accompanying consolidated financial statements. The company's borrowings increased by $747 million in 1995, excluding currency translation and $50 million of borrowings assumed in acquisitions, primarily to fund property additions, origination of financing receivables and Asian acquisitions. In December 1994, the company announced plans to repurchase up to 5% of the outstanding shares of common stock. The treasury shares will be used in employee stock-option, retirement and other compensation programs and for general corporate purposes. Through the end of December 1996, the company had repurchased approximately 966,000 shares for $51 million. The company reduced borrowings by $33 million in 1994 primarily due to the continued liquidation of WFC's commercial lending portfolio. Financial Condition and Other Matters The financial position of the company remains strong as evidenced by the December 31, 1996 balance sheet. The company's total assets are $8.0 billion and stockholders' equity is $1.9 billion. The overall debt to invested capital ratio at December 31, 1996 increased compared to December 31, 1995. The appliance business debt to invested capital ratio net of cash ("debt ratio") of 43% was down slightly from 1995. As of December 31, 1996, convertible notes with principal amounts of $372 million had been converted into 2.7 million shares of the company's common stock. In January 1997, the company called all remaining outstanding convertible debt, paying $113 million financed by issuing additional commercial paper. The debt ratio is also affected by European currency movements due to a combination of foreign borrowings and the company's hedging strategy related to European net assets. The 1996 financial services debt to invested capital ratio increased due to 31 higher investment levels compared to the prior year. The company's debt continues to be rated investment grade by Moody's Investors Service Inc., Standard and Poor's and Duff & Phelps. Various European currency swaps and forward contracts serve as a hedge of net foreign currency cash flows and also hedge a portion of the company's European net assets. Changes in the value of the swaps and forward contracts due to movements in exchange rates are included in the currency translation component of stockholders' equity if they relate to the European net asset hedge or otherwise in other income (expense). Refer to Notes 1 and 7 of the accompanying consolidated financial statements for further description of the company's hedging strategies and use of financial derivatives. WFC's financing portfolio by business segment is as follows: December 31 (millions of dollars) 1996 1995 - - ------------------------------------------------------------------------------- Inventory $ 1,215 58% $ 857 46% Aerospace 361 17 411 22 Consumer 474 23 531 29 Other 55 2 59 3 - - ------------------------------------------------------------------------------- $2,105 100% $1,858 100% - - ------------------------------------------------------------------------------- The aerospace portfolio is generally secured by newer (stage III) aircraft on lease to various international airlines. Although the commercial airline industry seems to be stabilizing, the near-term outlook remains uncertain. Management believes the aerospace portfolio carrying value is appropriate. The company is continuing to phase out of aerospace lending activities. The financial services industry is very competitive and various leasing companies, financial institutions and finance companies operate in the same markets as WFC. Refer to Notes 1 and 3 of the accompanying consolidated financial statements for a further description of WFC's business. The company has external sources of capital available and believes it has adequate financial resources and liquidity to meet anticipated business needs and to fund future growth opportunities such as new products, acquisitions and joint ventures. Business Unit Revenues and Operating Profit The following appliance business (WFC on an equity basis) data are presented as supplemental information: Net Sales by Business Unit were as follows: Increase/ Year ended December 31 (millions of dollars) 1996 1995 (Decrease) - - ------------------------------------------------------------------------------- North America $5,310 $5,093 $ 217 4% Europe 2,494 2,428 66 3 Asia 461 376 85 23 Latin America 268 271 (3) (1) Other (10) (5) (5) (100) - - ------------------------------------------------------------------------------- Total Appliance Business $8,523 $8,163 $ 360 4% - - ------------------------------------------------------------------------------- Operating Profit by Business Unit was as follows: Increase/ Year ended December 31 (millions of dollars) 1996 1995 (Decrease) - - ------------------------------------------------------------------------------- North America $ 537 $ 445 $ 92 21 % Europe (13) 92 (105) (114) Asia (70) (50) (20) (40) Latin America 12 26 (14) (54) Restructuring (30) -- (30) N/M Other (158) (147) (11) (7) - - ------------------------------------------------------------------------------- Total Appliance Business $ 278 $ 366 $ (88) (24)% - - ------------------------------------------------------------------------------- 32 Management's Discussion & Analysis (continued) For commentary regarding performance in North America, Europe and restructuring, refer to "Results of Operations." Latin American sales and operating profit do not include the activities of Brazilian affiliates, which are included in equity in affiliated companies and discussed in "Results of Operations." Other consists of corporate expenses and eliminations. The significant increase in Asian sales over 1995 was driven by higher unit volumes from a full year of activity associated with prior year's acquisitions and new joint ventures. The operating losses in the Asian region were higher than those sustained in the prior periods as the region continues to solve marketing and distribution issues primarily in China. Latin American sales declined slightly from 1995 reflecting continued economic stagnation, a tight credit situation limiting customer and retailer financing resources in Argentina and economic decline in many other key regional markets. The operating profit decline in Latin America reflects these economic conditions as well as the termination of certain distributors. Revenue Information ------------------- Year ended December 31 (millions of dollars) Percent 1996 1995 1994 - - -------------------------------------------------------------------------------- Major Home Appliances Home Laundry Appliances 31% $2,699 $2,593 $2,610 Home Refrigeration and Room Air Conditioning Equipment 35 3,078 3,017 2,900 Home Cooking Appliances 16 1,379 1,321 1,258 Other Home Appliances 16 1,367 1,232 1,181 - - -------------------------------------------------------------------------------- 98 8,523 8,163 7,949 Financial Services 2 173 184 155 - - -------------------------------------------------------------------------------- 100% $8,696 $8,347 $8,104 - - -------------------------------------------------------------------------------- 33 Consolidated Balance Sheets ---------------------------
Supplemental Consolidating Data ---------------------------------------- Whirlpool Corporation Whirlpool with WFC Whirlpool Financial (Consolidated) on an Equity Basis Corporation (WFC) December 31 (millions of dollars) 1996 1995 1996 1995 1996 1995 - - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets - - -------------- Cash and equivalents $ 129 $ 149 $ 102 $ 125 $ 27 $ 24 Trade receivables, less allowances of $45 in 1996 and $39 in 1995 966 1,031 966 1,031 - - Financing receivables and leases, less allowances 1,400 1,086 - - 1,400 1,086 Inventories 1,034 1,029 1,034 1,029 - - Prepaid expenses and other 188 152 196 141 6 11 Deferred income taxes 95 94 95 94 - - - - ---------------------------------------------------------------------------------------------------------------------------------- Total Current Assets 3,812 3,541 2,393 2,420 1,433 1,121 Other Assets - - ------------ Investment in affiliated companies 513 425 523 425 - - Investment in WFC - - 273 269 - - Financing receivables and leases, less allowances 705 772 - - 705 772 Intangibles, net 870 931 870 931 - - Deferred income taxes 152 153 152 153 - - Other 165 199 165 199 - - - - ---------------------------------------------------------------------------------------------------------------------------------- 2,405 2,480 1,983 1,977 705 772 Property, Plant and Equipment - - ----------------------------- Land 93 97 93 97 - - Buildings 731 710 731 710 - - Machinery and equipment 3,015 2,855 2,996 2,831 19 24 Accumulated depreciation (2,041) (1,883) (2,030) (1,867) (11) (16) - - ---------------------------------------------------------------------------------------------------------------------------------- 1,798 1,779 1,790 1,771 8 8 - - ---------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 8,015 $ 7,800 $ 6,166 $ 6,168 $2,146 $1,901 - - ----------------------------------------------------------------------------------------------------------------------------------
34
Supplemental Consolidating Data ---------------------------------------- Whirlpool Corporation Whirlpool with WFC Whirlpool Financial (Consolidated) on an Equity Basis Corporation (WFC) December 31 (millions of dollars) 1996 1995 1996 1995 1996 1995 - - ----------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities - - ------------------- Notes payable $2,038 $1,939 $ 585 $ 709 $1,453 $1,230 Accounts payable 983 977 886 896 111 81 Employee compensation 226 232 220 222 6 10 Accrued expenses 624 552 624 552 - - Restructuring costs 32 70 32 70 - - Current maturities of long-term debt 119 59 119 56 - 3 - - ----------------------------------------------------------------------------------------------------------------------------------- Total Current Liabilities 4,022 3,829 2,466 2,505 1,570 1,324 Other Liabilities - - ----------------- Deferred income taxes 206 234 87 114 119 120 Postemployment benefits 563 517 557 517 6 - Other liabilities 161 181 161 181 - - Long-term debt 955 983 887 870 68 113 - - ----------------------------------------------------------------------------------------------------------------------------------- 1,885 1,915 1,692 1,682 193 233 Minority Interests 182 179 82 104 110 75 - - ------------------ Stockholders' Equity - - -------------------- Common stock, $1 par value: 250 million shares authorized, 81 million shares issued in 1996 and 1995 81 81 81 81 8 8 Paid-in capital 246 229 246 229 26 26 Retained earnings 1,918 1,863 1,918 1,863 242 234 Unearned restricted stock (7) (8) (7) (8) - - Cumulative translation adjustments (76) (53) (76) (53) (3) 1 Treasury stock - 6 million shares at cost in 1996 and 1995 (236) (235) (236) (235) - - - - ----------------------------------------------------------------------------------------------------------------------------------- 1,926 1,877 1,926 1,877 273 269 - - ----------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $8,015 $7,800 $6,166 $6,168 $2,146 $1,901 - - -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 35 Consolidated Statements of Cash Flows -------------------------------------
Supplemental Consolidating Data ---------------------------------------------- Whirlpool Corporation Whirlpool with WFC Whirlpool Financial (Consolidated) on an Equity Basis Corporation (WFC) ---------------------- ---------------------- -------------------- Year ended December 31 (millions of dollars) 1996 1995 1994 1996 1995 1994 1996 1995 1994 - - -------------------------------------------- ---- ----- ----- ---- ----- ----- ---- ---- ---- OPERATING ACTIVITIES Net earnings $156 $ 209 $ 158 $156 $ 209 $ 158 $ 15 $ 14 $11 Depreciation 318 282 272 291 253 243 27 29 29 Deferred income taxes (32) 44 (28) (31) 35 (39) (1) 9 11 Equity in net earnings of affiliated companies, less dividends received (84) (58) (57) (84) (58) (57) - - - Equity in net earnings of WFC, net of dividend - - - (8) (14) (11) - - - Gain on business dispositions - - (60) - - (60) - - - Provision for doubtful accounts 52 43 28 4 9 6 48 34 22 Amortization of goodwill 35 30 20 35 30 20 - - - Restructuring charges, net of cash paid (42) (119) 197 (42) (117) 195 - (2) 2 Minority interests (18) 1 12 (18) 1 12 - - - Changes in assets and liabilities, net of effects of business acquisitions and dispositions: Trade receivables 58 23 (125) 58 23 (125) - - - Inventories (7) (111) (72) (7) (111) (72) - - - Accounts payable (21) 70 107 (21) 65 105 - 5 2 Other--net 130 (37) (3) 116 (19) 5 14 (18) (8) - - -------------------------------------------------------------------------------------------------------------------------------- Cash Provided by Operating Activities $545 $ 377 $ 449 $449 $ 306 $ 380 $103 $ 71 $69 - - --------------------------------------------------------------------------------------------------------------------------------
36
Supplemental Consolidating Data ---------------------------------------------------------- Whirlpool Corporation Whirlpool with WFC Whirlpool Financial Year Ended December 31 (Consolidated) on an Equity Basis Corporation (WFC) (millions of dollars) 1996 1995 1994 1996 1995 1994 1996 1995 1994 - - ----------------------------------------------------------------------------------------------------------------------------------- Investing Activities - - -------------------- Net additions to properties $ (336) $ (483) $ (418) $ (333) $ (477) $ (416) $ (3) $ (6) $ (2) Financing receivables originated and leasing assets purchased (4,860) (3,613) (3,050) - - - (4,860) (3,613) (3,050) Principal payments received on financing receivables and leases 4,595 3,357 3,068 - - - 4,595 3,357 3,068 Acquisitions of businesses, less cash acquired (27) (157) (28) (37) (157) (28) 10 - - Net increase (decrease) in investment in and advances to affiliated companies 15 (40) - 15 (40) - - - - Business dispositions - 26 124 - 26 124 - - - Other (32) (25) (35) - - (9) (32) (25) (26) - - ----------------------------------------------------------------------------------------------------------------------------------- Cash Used For Investing Activities (645) (935) (339) (355) (648) (329) (290) (287) (10) Financing Activities - - -------------------- Proceeds of short-term borrowings 24,911 16,493 12,727 9,423 7,237 4,344 15,488 9,256 8,383 Repayments of short-term borrowings (24,847) (15,744) (12,585) (9,619) (6,768) (4,255) (15,228) (8,976) (8,330) Proceeds of long-term debt 316 130 42 316 130 129 - - - Repayments of long-term debt (209) (121) (206) (132) (72) (206) (77) (49) (87) Repayments of non-recourse debt (13) (10) (11) - - - (13) (10) (11) Dividends (101) (100) (90) (101) (100) (90) (7) - - Purchase of treasury stock - (35) (16) - (35) (16) - - - Proceeds from the sale of preferred stock 25 - - - - - 25 - - Other (2) 22 13 (4) 24 13 2 (2) - - - ----------------------------------------------------------------------------------------------------------------------------------- Cash Provided by (Used for) Financing Activities 80 635 (126) (117) 416 (81) 190 219 (45) - - ----------------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Cash and Equivalents (20) 77 (16) (23) 74 (30) 3 3 14 Cash and equivalents at beginning of year 149 72 88 125 51 81 24 21 7 - - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Equivalents at End of Year $ 129 $ 149 $ 72 $ 102 $ 125 $ 51 $ 27 $ 24 $ 21 - - -----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements 37 CONSOLIDATED STATEMENTS OF EARNINGS -----------------------------------
Supplemental Consolidating Data -------------------------------------------------------- Whirlpool Corporation Whirlpool with WFC Whirlpool Financial Year Ended December 31 (Consolidated) on an Equity Basis Corporation (WFC) (millions of dollars except per share data) 1996 1995 1994 1996 1995 1994 1996 1995 1994 - - ------------------------------------------------------------------------------------------------------------------------------------ REVENUES Net sales $8,523 $8,163 $7,949 $8,523 $8,163 $7,949 $ - $ - $ - Financial services 173 184 155 - - - 224 219 184 - - ------------------------------------------------------------------------------------------------------------------------------------ 8,696 8,347 8,104 8,523 8,163 7,949 224 219 184 EXPENSES Cost of products sold 6,623 6,245 5,952 6,623 6,245 5,952 - - - Selling and administrative 1,637 1,609 1,490 1,557 1,521 1,415 131 123 104 Financial services interest 71 66 51 - - - 81 79 63 Intangible amortization 35 31 24 35 31 24 - - - Gain on dispositions - - (60) - - (60) - - - Restructuring costs 30 - 250 30 - 248 - - 2 - - ------------------------------------------------------------------------------------------------------------------------------------ 8,396 7,951 7,707 8,245 7,797 7,579 212 202 169 OPERATING PROFIT 300 396 397 278 366 370 12 17 15 OTHER INCOME (EXPENSE) Interest and sundry (5) (13) 9 (23) (23) 3 18 11 8 Interest expense (165) (141) (114) (155) (129) (104) - - - - - ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS BEFORE INCOME TAXES AND OTHER ITEMS 130 242 292 100 214 269 30 28 23 Income taxes 81 100 176 70 90 169 11 10 7 - - ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS BEFORE EQUITY EARNINGS AND MINORITY INTERESTS 49 142 116 30 124 100 19 18 16 Equity in WFC - - - 15 14 11 - - - Equity in affiliated companies 93 72 59 93 72 59 - - - Minority interests 14 (5) (17) 18 (1) (12) (4) (4) (5) - - ------------------------------------------------------------------------------------------------------------------------------------ NET EARNINGS $ 156 $ 209 $ 158 $ 156 $ 209 $ 158 $ 15 $ 14 $ 11 - - ------------------------------------------------------------------------------------------------------------------------------------ Per share of common stock: Net earnings $ 2.08 $ 2.80 $ 2.10 Cash dividends $ 1.36 $ 1.36 $ 1.22 Average number of common shares and equivalents outstanding (millions) 75.1 74.8 75.5
See notes to consolidated financial statements 38 Notes to Consolidated Financial Statements ------------------------------------------ (1) Summary of Principal Accounting Policies Nature of Operations: Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances. The company manufactures in 13 countries on five continents and markets products to distributors and retailers in about 140 countries. Whirlpool Financial Corporation (WFC), a consolidated subsidiary, provides diversified financial services to businesses and consumers in the Americas, Europe and Asia. Financial products include inventory financing services for retailers and distributors that market products manufactured by the company and various other manufacturers, and consumer financing services for retail sales by retailers. Principles of Consolidation: The consolidated financial statements include all majority-owned subsidiaries. Investments in affiliated companies are accounted for by the equity method. Intercompany transactions and amounts between Whirlpool and WFC included in the supplemental consolidating data have been eliminated in the consolidated financial statements. The eliminations relate primarily to intercompany financing, interest and leasing transactions. Use of Estimates: Management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition: Sales are recorded when product is shipped to distributors or directly to retailers. Refer also to "Financing Receivables and Leases." Cash and Equivalents: All highly liquid debt instruments purchased with a maturity of three months or less are considered cash equivalents. Inventories: Inventories are stated at first-in, first-out (FIFO) cost, except U.S. production inventories, which are stated at last-in, first-out (LIFO) cost. Costs do not exceed realizable values. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation of plant and equipment is computed using the straight-line method based on the estimated useful lives of the assets. Intangibles: The cost of business acquisitions in excess of net tangible assets acquired is amortized on a straight-line basis principally over 40 years. Noncompete agreements are amortized on a straight-line basis over the terms of the agreements. Accumulated amortization aggregated $191 million and $166 million at December 31, 1996 and 1995. Should circumstances indicate the potential impairment of goodwill, the company would compare the carrying amount against related estimated undiscounted future cash flows to determine if a write-down to market value or discounted cash flow value is required. Research and Development Costs: Research and development costs are charged to expense as incurred. Such costs were $197 million, $180 million and $152 million in 1996, 1995 and 1994. Advertising costs: Advertising costs are charged to expense as incurred. Such costs were $127 million, $126 million and $140 million in 1996, 1995 and 1994. Financing Receivables and Leases: Interest and discount charges are recognized in revenues using the effective yield method. Lease income is recorded in decreasing amounts over the term of the lease contract, resulting in a level rate of return on the net investment in the lease. Origination fees and related costs are deferred and amortized as yield adjustments over the life of the related receivable or lease. The allowance for losses is maintained at estimated amounts necessary to cover losses on all finance and leasing receivables based on management's assessment of various factors, including loss experience and review of problem accounts. Derivative Financial Instruments: The company uses derivative financial instruments to manage the economic impact of fluctuations in interest rates, foreign currency exchange rates and commodity prices. To achieve this, the company enters into interest rate and cross currency interest rate swaps, foreign currency forward contracts and options, and commodity swaps. The company's hedging strategy for the foreign currency exchange risk associated with its investment in Europe is based on projected foreign currency cash flows over periods up to 10 years. The company uses interest rate and cross currency interest rate swaps 39 Notes to Consolidated Financial Statements ------------------------------------------ (1) Summary to Principal Accounting Policies (continued) to effectively convert a portion of the company's U.S. dollar denominated debt into various European currencies. The company's investment in Europe and the foreign currency portion of these cross currency interest rate swaps are revalued in dollar terms each period to reflect current foreign currency exchange rates, with gains and losses recorded in the equity section of the balance sheet. To the extent that the notional amounts of these contracts exceed the company's investment in Europe, the related mark-to-market gains and losses are reflected currently in earnings. The net translation loss recognized in other income, including the gains and losses from those contracts not qualifying as hedges, was $14 million, $16 million and $3 million in 1996, 1995 and 1994. The amounts receivable from or payable to counterparties to the swaps, offsetting the gains and losses recorded in equity or earnings, are recorded in long-term debt. The company also uses domestic interest rate swaps to manage the duration and interest rate characteristics of its outstanding debt. The interest component of the swaps, which overlay a portion of the company's interest payments on outstanding debt, is not carried at fair value in the financial statements. The interest differential paid or received is recognized as an adjustment to interest expense. Gains and losses on the interest component of terminated swaps are deferred in noncurrent liabilities and amortized as an adjustment to interest expense over the remaining term of the original swap. In the event of early extinguishment of debt, any realized or unrealized gains or losses from related swaps would be recognized in income concurrent with the extinguishment. The company also uses foreign currency forward contracts to hedge payments due on cross currency interest rate swaps and inter-company loans and, along with foreign currency options, to hedge material purchases, intercompany shipments and other commitments. In addition, the company hedges a portion of its contractual requirements of certain commodities with commodity swaps. These contracts are not carried at fair value in the financial statements as the related gains and losses are recognized in the same period and classified in the same manner as the underlying transactions. Any gains and losses on terminated contracts are deferred in current liabilities until the underlying transactions occur. WFC enters into interest rate swaps, to match certain assets and liabilities in terms of duration and pricing frequency to manage margins on its financing transactions. In addition, currency swaps hedge certain foreign equity investments. The WFC swaps are accounted for the same as the company's cross currency and interest rate swaps. The company deals only with investment-grade counterparties to these contracts and monitors its overall credit risk and exposure to individual counterparties. The company does not anticipate non-performance by any counterparties. The amount of the exposure is generally the unrealized gains in such contracts. The company does not require, nor does it post, collateral or security on such contracts. Net Earnings Per Common Share: Net earnings per common share are based on the average number of shares of common stock and common stock equivalents outstanding during each year. Primary per share amounts assume, if dilutive, the exercise of stock options and vesting of restricted stock using the treasury stock method. (2) Business Acquisitions and Dispositions In November 1996, the company announced an agreement to sell the compressor division and related facilities of its majority-owned Indian subsidiary, contingent upon receiving all necessary government and regulatory approvals and finalization of definitive agreements. The transaction is expected to be finalized in early 1997 at a sale price near the carrying amount of the related assets and involves a long-term supplier relationship with the purchaser, initially involving annual compressor purchases of about $25 million to $30 million. In October 1996, the company acquired the remaining minority interest in Whirlpool Tatramat a.s., a Slovakian washing machine manufacturer and appliance distributor, for about $4 million. 40 (2) Business Acquisitions and Dispositions (continued) In September 1996, the Company acquired 100% of Gentech Trading (Pty.) Ltd., a South African company, for about $27 million--$2 million of cash and $25 million of assumed debt. Renamed Whirlpool South Africa, the company manufactures refrigerators and markets manufactured and imported appliances under the Whirlpool and local KIC brand names. Gentech annual sales were about $100 million for its fiscal year 1995. In May 1996, two of the company's majority-owned subsidiaries in India, Kelvinator of India (KOI) and Whirlpool Washing Machines Ltd. (WWML), were merged and renamed Whirlpool of India (WOI). As part of the merger plan, the company purchased an additional interest in WWML for $12 million in April 1996, resulting in a 56% interest in the combined entity, WOI. During 1995, the company expanded its presence in Asia by acquiring controlling interests in three existing manufacturing companies and establishing three new joint ventures. In November 1995, the company acquired a majority interest in Raybo Air Conditioner Manufacturing Co., a Chinese manufacturer and marketer of air conditioners, for about $22 million in cash. In May 1995, the company acquired a majority interest in Shunde SMC Microwave Products Co. Ltd., a Chinese manufacturer and marketer of microwave ovens, for about $90 million in cash. In February 1995, the company acquired a majority interest in KOI, a manufacturer and marketer of refrigerators, for about $116 million in cash funded principally in 1995. Annual sales for fiscal year 1994 were about $20 million, $100 million and $120 million for Raybo, Shunde SMC and KOI. The company's new Chinese joint ventures include a $17 million majority interest in Beijing Whirlpool Snowflake Electric Appliance Co. Ltd. to produce refrigerators; a $16 million majority interest in Whirlpool Narcissus (Shanghai) Co. Ltd. to produce washing machines; and a $5 million minority interest in Beijing Embraco Snowflake Compressor Co. Ltd. to produce compressors for refrigerators and air conditioners. In September 1994, the company sold its minority interest in Matsushita Floor Care Co., a joint venture which manufactures and markets vacuum cleaners in the North American market. The sale resulted in cash proceeds of $44 million and a pretax gain of $26 million. The after-tax gain was $18 million or $.24 per share. In April 1994, the company sold its European compressor operations to one of the company's Brazilian affiliates for $106 million. The company received 75% of the selling price in cash at the closing date with the remainder received in 1995. The sale resulted in a pretax gain of $34 million but no significant gain or loss after taxes. The European compressor operation contributed gross sales of $213 million, including third-party sales of $127 million and pretax earnings of $10 million in 1993. In April 1994, the company made an additional $3 million investment in TVS Whirlpool Ltd. to become the majority partner in this Indian joint venture, renamed Whirlpool Washing Machines Ltd. in 1995. In February 1994, the company made an additional $3 million investment in Whirlpool Tatramat to become the majority partner in this Slovakian joint venture, and contributed $3 million for a minority interest in a joint venture with Teco Electric and Machinery Co. Ltd. to market and distribute appliances in Taiwan. Pro forma consolidated operating results reflecting these acquisitions and dispositions would not have been materially different from reported amounts. The acquisitions have been accounted for as purchases and their operating results have been consolidated with the company's results since the dates of acquisition. 41
Notes to Consolidated Financial Statements ------------------------------------------ (3) Financing Receivables and Leases December 31 (millions of dollars) 1996 1995 - - ------------------------------------------------------------------------------- Financing receivables $ 1,853 $ 1,569 Financing leases 102 106 Operating leases and investments 173 197 - - ------------------------------------------------------------------------------- 2,128 1,872 Unearned income (51) (52) Estimated residual value 78 80 Allowances for doubtful accounts (50) (42) - - ------------------------------------------------------------------------------- (23) (14) - - ------------------------------------------------------------------------------- Total financing receivables and leases 2,105 1,858 Less current portion 1,400 1,086 - - ------------------------------------------------------------------------------- Long-term portion $ 705 $ 772 - - ------------------------------------------------------------------------------- Deferred income tax liabilities relating to financing leases were $123 million and $118 million at December 31, 1996 and 1995. Financing receivables and leases at December 31, 1996, include $966 million due from appliance and electronics dealers and $361 million resulting from aerospace financing transactions. These amounts are generally secured by the assets financed. Nonearning financing receivables and leases totaled $28 million and $41 million at December 31, 1996 and 1995. Net losses on financing receivables and leases were $40 million, $39 million and $25 million in 1996, 1995 and 1994. Financing receivables of $108 million and $112 million are considered impaired under Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan," at December 31, 1996 and 1995. Specific allowances for losses on these receivables total $29 million and $19 million at December 31, 1996 and 1995. WFC recognized $9 million and $12 million of interest income in 1996 and 1995 on these receivables. Financing receivables and minimum lease payments receivable at December 31, 1996, mature contractually as follows: Financing Financing December 31 (millions of dollars) Receivables Leases - - ------------------------------------------------------------------------------- 1997 $ 1,420 $ 2 1998 164 3 1999 110 2 2000 34 2 2001 8 2 Thereafter 117 91 - - ------------------------------------------------------------------------------- $ 1,853 $ 102 - - ------------------------------------------------------------------------------- (4) Inventories December 31 (millions of dollars) 1996 1995 - - ------------------------------------------------------------------------------- Finished products $ 991 $ 984 Work in process 59 84 Raw materials 213 194 - - ------------------------------------------------------------------------------- Total FIFO cost 1,263 1,262 Less excess of FIFO cost over LIFO cost 229 233 - - ------------------------------------------------------------------------------- $ 1,034 $ 1,029 - - ------------------------------------------------------------------------------- LIFO inventories represent approximately 39% and 41% of total inventories at December 31, 1996 and 1995. (5) Affiliated Companies The company has direct voting interests, ranging from 30% to 49%, in two Brazilian companies (Multibras S.A., and Embraco S.A.), a Mexican company (Vitromatic S.A. de C.V.) and several other international companies principally engaged in the manufacture and sale of major home appliances or related component parts. Equity in the net earnings (loss) of affiliated companies, net of related taxes, is as follows:
42 (5) Affiliated Companies (continued)
Year ended December 31 (millions of dollars) 1996 1995 1994 - - ------------------------------------------------------------------------------------ Brazilian Affiliates $ 92 $ 70 $ 39 Mexican affiliate (3) -- 16 Other 4 2 4 - - ------------------------------------------------------------------------------------- Total equity earnings $ 93 $ 72 $ 59 ===================================================================================== Combined condensed financial information for all affiliated operating companies follows: December 31 (millions of dollars) 1996 1995 - - ------------------------------------------------------------------------------------ Current assets $1,365 $1,044 Other assets 1,090 991 - - ------------------------------------------------------------------------------------- $2,455 $2,035 ===================================================================================== Current liabilities $1,795 $ 673 Other liabilities 380 321 Stockholders' equity 1,280 1,041 - - ------------------------------------------------------------------------------------- $2,455 $2,035 ===================================================================================== Year ended December 31 (millions of dollars) 1996 1995 1994 - - ------------------------------------------------------------------------------------ Net sales $3,112 $2,772 $2,051 - - ------------------------------------------------------------------------------------ Cost of products sold $2,323 $2,122 $1,441 - - ------------------------------------------------------------------------------------ Net earnings $ 265 $ 192 $ 173 - - ------------------------------------------------------------------------------------- Dividends and fees paid to Whirlpool by affiliates $ 20 $ 20 $ 16 - - ------------------------------------------------------------------------------------- (6) Financing Arrangements After finalizing new credit arrangements in January 1997, the company has unused credit lines of about $2.9 billion, including $1.5 billion expiring in 2002 and the remainder expiring in 1998. Generally, the banks are compensated for their credit lines by a fee and do not require formal compensating balances. Notes payable consist of the following: December 31 (millions of dollars) 1996 1995 - - ------------------------------------------------------------------------------------ Payable to banks $ 263 $ 103 Commercial paper 1,761 1,778 Other 14 58 - - ------------------------------------------------------------------------------------- $2,038 $1,939 ===================================================================================== The weighted average interest rate on notes payable was 6.34% and 6.17% at December 31, 1996 and 1995. WFC preferred stock arrangements as follows: Number of Face Annual Mandatory Date of Shares Value Dividend Redemption Date Issuance - - ------------------------------------------------------------------------- Series A 400,000 $100 $5.55 9/1/1998 8/31/1993 Series B 350,000 $100 $6.55 9/1/2008 8/31/1993 Series C 250,000 $100 $6.09 2/1/2002 12/27/1996
The preferred stockholders are entitled to vote together on a share-for-share basis with WFC's common stockholder. Preferred stock dividends are payable quarterly. At its option, WFC may redeem the Series B at any time on or after September 1, 2003, or at any earlier date for Series C. The redemption price for each series is $100 per share plus any accrued unpaid dividends and the applicable redemption premium if redeemed early. Commencing September 1, 2003, WFC must pay $1,750,000 per year to a sinking fund for the benefit of the Series B Preferred Stockholders, with a final payment of $26,250,000 due on or before September 1, 2008. There are no sinking fund requirements for the Series A or Series C Preferred Stock. The company and WFC are parties to a support agreement. Pursuant to the agreement, if at the close of any quarter WFC's net earnings available for fixed charges (as defined) for the preceding 12 months is less than a stipulated amount, the company is required to make a cash payment to WFC equal to the insufficiency within 60 days of the end of the quarter. The support agreement may be terminated by either WFC or the company upon 30 days notice provided that 43 Notes to Consolidated Financial Statements ------------------------------------------ (6) Financing Arrangements (continued) certain conditions are met. The company has also agreed to maintain ownership of at least 70% of WFC's voting stock. During 1991, the company sold $675 million in face amount of subordinated zero-coupon convertible notes and received $170 million in gross proceeds. The notes were priced to yield 7% interest to maturity. Holders may convert each $1,000 face amount of the notes into 7.237 shares of common stock. Holders may also redeem the notes for the issuance price plus accrued original issue discount at the end of 5, 10 and 15 years or upon a change in control of the company. The company may at its option elect to pay the redemption price in any combination of cash and common stock, except upon a change in control, in which case the redemption price is payable in cash. The company also has the right to call the notes at a price equal to their issuance price plus accrued original issue discount. In January 1997, the company paid $113 million to call the outstanding subordinated zero-coupon convertible notes resulting in an insignificant loss on extinguishment. The call payment was financed through issuance of additional commercial paper. At redemption, an aggregate principal amount of $372 million had been converted into 2.7 million shares of the company's common stock. Long-term debt consists of the following:
Interest December 31 (millions of dollars) Maturity Rate 1996 1995 - - ------------------------------------------------------------------------------------ Debentures 2008 and 2016 7.8 and 9.1% $ 368 $ 125 Senior notes 2000 and 2003 9.0 and 9.5 400 424 Medium term notes 1999 and 2006 8.9 to 9.1 25 72 Subordinated convertible notes 2011 7.0 113 105 Mortgage notes 1997 to 2012 6.3 and 6.6 67 61 Other 101 255 - - ------------------------------------------------------------------------------------ 1,074 1,042 Less current maturities 119 59 - - ------------------------------------------------------------------------------------ $ 955 $ 983 ====================================================================================
Annual maturities of long-term debt in the next five years are $119 million, $39 million, $25 million, $227 million and $25 million in 1997 through 2001. The company paid interest on short-term and long-term debt totaling $228 million, $232 million and $162 million in 1996, 1995 and 1994. (7) Fair Value of Financial Instruments The following methods and assumptions were used in estimating fair values of financial instruments: Cash and Equivalents and Notes Payable: The carrying amounts approximate fair values. Financing Receivables: The fair value is estimated using discounted cash flow analyses based on current interest rates being offered to borrowers of similar credit quality. The carrying amounts approximate fair values. Long-Term Debt and WFC Preferred Stock: The fair values are estimated using discounted cash flow analyses based on incremental borrowing or dividend yield rates for similar types of borrowing or equity arrangements. The WFC preferred stock carrying amount approximates fair value. Derivative Financial Instruments: The fair values of interest rate swaps, cross currency interest rate swaps, foreign currency forward contracts and option collars and commodity swaps are based on quoted market prices. 44 (7) Fair Value of Financial Instruments (continued) The carrying amounts and fair values of financial instruments for which the fair value does not approximate the liability carrying amount are as follow:
1996 1995 ----------------- ----------------- Carrying Fair Carrying Fair December 31 (millions of dollars) Amount Value Amount Value - - ------------------------------------------------------------------------------------------- Long-term debt (including current portion) $1,053 $1,118 $ 919 $1,021 Derivative financial instruments (notional amounts indicated): Hedges of net investment in Europe including converted debt: Interest rate and cross currency interest rate swaps ($1,506 million and $1,624 million in 1996 and 1995) 21 110 123 210 Foreign currency forward contracts ($1 million and $9 million in 1996 and 1995) - - - - Domestic interest rate swaps ($240 million in 1996) - (1) - - Transaction hedges: Foreign currency forward contracts ($950 million and $514 million in 1996 and 1995) - - - 3 Foreign currency options ($149 million in 1995) - - - (4) Hedges with commodity swaps ($35 million and $25 million in 1996 and 1995) - - - 1 WFC interest rate and cross currency swaps ($44 million and $33 million in 1996 and 1995) - - - 2 - - ------------------------------------------------------------------------------------------- Total long-term debt $1,074 $1,227 $1,042 $1,233 - - -------------------------------------------------------------------------------------------
At December 31, 1996, interest rate and cross currency interest rate swaps effectively convert $876 million of U.S. dollar denominated debt into European currency denominations ($468 million - German marks, $319 million - French francs, $39 million - Swiss francs and $50 million - British pounds). About one- half of this converted debt has floating rates and the other half has fixed rates. Floating rates received range from LIBOR less .9% to LIBOR, and floating rates paid range from local currency LIBOR to local currency LIBOR plus 3.25%. Fixed rates received range from 3.55% to 7.20%, and fixed rates paid range from 5.13% to 9.25%. The swaps mature within 10 years. At December 31, 1996, domestic interest rate swaps effectively convert $240 million of fixed rate debt into floating rate debt. Fixed rates received range from 6.99% to 7.21%. Floating rates are LIBOR. The domestic interest rate swaps mature within five years. At December 31, 1996, WFC interest rate swaps effectively convert $39 million of floating rate debt into fixed rate debt, as well as convert $5 million of U.S. dollar denominated debt into Canadian currency denomination. Floating rates received are based on LIBOR or commercial paper rates, and fixed rates paid range from 6.33% to 9.31%. The WFC swaps mature within five years. Foreign currency forward contracts mature within one day to two years and involve principally European and North American currencies. Copper commodity swaps mature within two years. (8) Stockholders' Equity In addition to its common stock, the company has 10 million authorized shares of preferred stock (par value $1 per share), none of which is outstanding. Consolidated retained earnings at December 31, 1996 included $313 million of equity in undistributed net earnings of affiliated companies. The cumulative translation component to stockholders' equity represents the effect of translating net assets of the company's inter- 45 Notes to Consolidated Financial Statements ------------------------------------------ (8) Stockholders' Equity (continued) national subsidiaries offset by related hedging activity net of tax. Conversion of notes, stock option transactions and restricted stock grants account for the changes in paid-in capital. One Preferred Stock Purchase Right (Rights) is outstanding for each share of common stock. The Rights, which expire May 23, 1998, will become exercisable 10 days after a person or group either becomes the beneficial owner of 20% or more of the common stock or commences a tender or exchange offer that would result in such person or group beneficially owning 25% or more of the outstanding common stock. Each Right entitles the holder to purchase from the company one newly issued unit consisting of one one-hundredth of a share of Series A Participating Cumulative Preferred Stock at an exercise price of $100, subject to adjustment. If (i) any person or group becomes the beneficial owner of 25% or more of Whirlpool common stock, or (ii) the company is the surviving corporation in a merger with a 20% or more stockholder and its common stock is not changed or converted, or (iii) a 20% or more stockholder engages in certain self-dealing transactions with the company, then each Right not owned by such person will entitle the holder to purchase, at the Rights' then current exercise price, shares of the company's common stock having a value of twice the Rights' then current exercise price. In addition, if the company is involved in a merger in which its common stock is converted or sells 50% or more of its assets, each Right will entitle its holder to purchase for the exercise price shares of common stock of the acquiring successor company having a value of twice the Rights' then current exercise price. The company will be entitled to redeem the Rights in whole, but not in part, at $.05 per Right at any time prior to the expiration of a 10-day period (subject to extension) following public announcement of the existence of a 20% holder or of a 25% or more tender offer. Until such time as the Rights become exercisable, the Rights have no voting or dividend privileges and are attached to, and do not trade separately from, the common stock. At December 31, 1996, one million preferred shares were reserved for future exercise of Stock Purchase Rights. (9) Stock Option and Incentive Plans The company's stock option and incentive plan permits the grant of stock options and other stock awards covering up to 9.4 million shares to key employees of the company and its subsidiaries, of which 3.4 million shares are available for grant at December 31, 1996. The plan authorizes the grant of both incentive and nonqualified stock options and, further, authorizes the grant of stock appreciation rights and related supplemental cash payments independently of or with respect to options granted or outstanding. Stock options generally have 10-year terms and vest and become fully exercisable over a three year period after date of grant. An Executive Stock Appreciation and Performance Program (ESAP), a Restricted Stock Value Program (RSVP) and a Career Stock Program (CSP) have been established under the plan. Performance awards under ESAP and RSVP are generally earned over multiyear time periods upon the achievement of certain performance objectives or upon a change in control of the company. CSP awards are earned at specified dates during a participant's career with the company or upon change in control of the company, ESAP awards are payable in cash, common stock or a combination thereof when earned. RSVP grants restricted shares which may not be sold, transferred or encumbered until the restrictions lapse. CSP grants phantom stock awards which are redeemable for shares of the company's common stock upon the recipient's retirement after attaining age 60 and subject to certain noncompetition provisions. Outstanding restricted and phantom shares totaled 984,400 with a weighted-average grant-date fair value of $46.84 per share at December 31, 1996 and 986,500 with a weighted- average grant-date fair value of $45.94 per share at December 31, 1995. Expenses under the plan were $3 million, $5 million and $6 million in 1996, 1995 and 1994. Under the Nonemployee Director Stock Ownership Plan, each nonemployee director is automatically granted 400 shares of common stock annually and is eligible for a stock option grant of 600 shares if the company's earnings meet a prescribed earnings formula. This plan provides for the grant of up to 200,000 shares as either stock or stock options, of which 147,000 shares are available for grant at December 31, 1996. The stock options vest and become 46 (9) Stock Option and Incentive Plans (continued) exercisable six months after the date of grant. There were no significant expenses under this plan for 1996, 1995 or 1994. The company maintains an employee stock option plan (PartnerShare) that grants substantially all full-time U.S. employees a fixed number of stock options that vest over a three-year period and may be exercised over a 10-year period. PartnerShare authorizes the grant of up to 2.5 million shares of which 500,000 shares are available for grant at December 31, 1996. Stock option and incentive plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Generally, no compensation expense is recognized for stock options with exercise prices equal to the market value of the underlying shares of stock at the date of grant. Compensation expense is recognized for ESAP, RSVP and CSP awards based on the market value of the underlying shares of stock when the number of shares is determinable. Had stock options and incentive plans been accounted for in accordance with Financial Accounting Standards Board Statement No. 123, "Accounting for Stock- Based Compensation," under which stock options are accounted for at estimated fair value, pro forma net earnings and pro forma earnings per share would not have been materially different from reported amounts. A summary of stock option information follows:
1996 1995 --------------------------- -------------------------- Weighted Weighted Number Average Number Average December 31 (thousands of shares, except per-share data of Shares Option Price of Shares Option Price - - --------------------------------------------------------------------------------------------------------------------------- Outstanding at January 1 3,397 $43.99 3,214 $39.96 Granted 1,282 50.62 723 55.75 Exercised (331) 34.06 (427) 32.65 Canceled or expired (221) 53.99 (113) 47.62 ----- ----- Outstanding at December 31 4,127 $46.31 3,397 $43.99 - - --------------------------------------------------------------------------------------------------------------------------- Exercisable at December 31 2,438 $42.43 2,307 $38.60 - - --------------------------------------------------------------------------------------------------------------------------- Available fair value of options granted during year $13.00 $16.00 - - ---------------------------------------------------------------------------------------------------------------------------
Of the outstanding options at December 31, 1996, 1,466,000 shares granted prior to 1993 (all of which are exercisable) have option prices ranging from $22.50 to $37.63 and a weighted-average remaining contractual life of 4.6 years, while 2,661,000 shares granted subsequent to 1992 (of which 972,000 shares are currently exercisable at a weighted-average option price of $54.74) have option prices ranging from $50.31 to $55.81 and a weighted-average remaining contractual life of 8.6 years. (10) Restructuring Costs Restructuring costs in 1996 and 1994 consist of the following:
December 31 (millions of dollars) 1996 1994 - - ------------------------------------------------------------------------------------------ Cash costs: Employee severance and related payments $ 9 $176 Lease termination, facility disposition and other costs 3 34 - - ------------------------------------------------------------------------------------------ Total cash costs 12 210 Noncash costs: Loss on disposal of facilities and equipment - 20 Other asset write-downs 18 20 - - ------------------------------------------------------------------------------------------ Total noncash costs 18 40 - - ------------------------------------------------------------------------------------------ $30 $250 - - ------------------------------------------------------------------------------------------
In 1996, restructuring costs relate to streamlining a North American refrigerator manufacturing operation in order to achieve greater efficiencies and lower manufacturing costs for specific refrigerator models, transferring Asian research and engineering operations from the regional center to the manufacturing locations and relocating Whirlpool Asia headquarters to Hong Kong. The remaining cash costs will be paid in 1997. Pretax charges to $18 million and $12 million relate to the company's North American and Asian operations and involve the termination of about 850 employees. About one-half of the 47 Notes to Consolidated Financial Statements ------------------------------------------ (10) Restructuring Costs (continued) cash costs were paid in 1996, with the remainder to be paid in 1997. Total 1996 after-tax charges were $19 million or $.25 per share. In 1994, restructuring costs relate to the consolidation and reorganization of the company's European sales, marketing and support functions to better serve dealers by trade channel rather than by country, the closure of two North American manufacturing facilities and the further consolidation and rationalization of North American operations. The company made payments of $205 million through 1996 related to severance of about 3,200 employees and other costs. The remaining cash costs of the restructuring will be paid in 1997. Pretax charges of $173 million, $72 million and $5 million relate to the company's European, North American and WFC/corporate operations. Total 1994 after-tax charges were $192 million or $2.54 per share. (11) Income Taxes The provisions for income taxes are as follows: Year ended December 31 (millions of dollars) 1996 1995 1994 - - ---------------------------------------------------------------------------- Current: Federal $ 78 $ 40 $ 143 State and local 19 2 29 Foreign 9 24 44 - - ---------------------------------------------------------------------------- 106 66 216 Deferred: Federal (6) 32 2 State and local 1 10 (10) Foreign (20) (8) (32) - - ---------------------------------------------------------------------------- (25) 34 (40) - - ---------------------------------------------------------------------------- $ 81 $ 100 $ 176 - - ---------------------------------------------------------------------------- Domestic and foreign earnings before income taxes and other items are as follows: Year ended December 31 (millions of dollars) 1996 1995 1994 - - ---------------------------------------------------------------------------- Domestic $ 309 $ 227 $ 315 Foreign (179) 15 (23) - - ---------------------------------------------------------------------------- $ 130 $ 242 $ 292 - - ---------------------------------------------------------------------------- Reconciliations between the U.S. federal statutory income tax rate and the consolidated effective income tax rate for earnings before income taxes and other items are as follows: Year ended December 31 (millions of dollars) 1996 1995 1994 - - ---------------------------------------------------------------------------- U.S. federal statutory rate 35.0% 35.0% 35.0% Impact of restructuring charge 4.7 -- 13.2 Impact of business dispositions -- -- 7.2 State and local taxes, net of federal tax benefit 8.4% 4.0 4.3 Nondeductible goodwill amortization 6.2 4.4 2.8 Settlement of prior year taxes -- (4.5) -- Excess foreign taxes (benefits) (3.6) 2.6 -- Net benefits from unrecognized prior year deferred tax assets and carryforwards (3.9) (6.7) (1.7) Unbenefited operating losses 14.6 4.0 -- Nondeductible interest 2.7 1.7 -- Research tax credits (5.7) (.8) (.8) Other items 3.5 1.6 .4 - - ---------------------------------------------------------------------------- Effective income tax rate 61.9% 41.3% 60.4% - - ---------------------------------------------------------------------------- A full tax benefit was not recognized on the 1994 restructuring charge in Europe and North America due to the net operating loss positions in certain tax jurisdictions. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. 48
(11) Income Taxes (continued) Significant components of the company's deferred tax liabilities and assets are as follows: December 31 (million of dollars) 1996 1995 - - ------------------------------------------------------------------------------- Deferred tax liabilities: Property, plant and equipment $ 162 $ 178 Financial services leveraged leases 123 118 Other 38 31 - - ------------------------------------------------------------------------------- Total deferred tax liabilities 323 327 Deferred tax assets: Postretirement obligation 151 142 Reserves 20 17 Restructuring Costs 20 52 Product warranty accrual 20 18 Prepaid expenses 9 11 Loss carryforwards 88 53 Employee compensation 21 28 Other 29 59 - - ------------------------------------------------------------------------------- Total deferred tax assets 358 380 Valuation allowances for deferred tax assets (30) (40) - - ------------------------------------------------------------------------------- Deferred tax assets, net of valuation allowances 328 340 - - ------------------------------------------------------------------------------- Net deferred tax assets $ 5 $ 13 - - ------------------------------------------------------------------------------- The company has recorded valuation allowances to reflect the estimated amount of net operating loss carryforwards, restructuring costs and other deferred tax assets which may not be realized. The company provides deferred taxes on the undistributed earnings of foreign subsidiaries and affiliates to the extent such earnings are expected to be remitted. Generally, earnings have been remitted only when no significant net tax liability would have been incurred. No provision has been made for U.S. or foreign taxes that may result from future remittances of the undistributed earnings ($392 million at December 31, 1996) of foreign subsidiaries and affiliates expected to be reinvested indefinitely. Determination of the deferred income tax liability on these unremitted earnings is not practicable as such liability, if any, is dependent on circumstances existing when remittance occurs. (12) Pension Plans The company maintains both contributory and noncontributory defined benefit pension plans covering substantially all North American employees and certain European employees. Benefits are based primarily on compensation during a specified period before retirement or specified amounts for each year of service. The company's present funding policy is to generally make the minimum annual contribution required by applicable regulations. Assets held by the plans consist primarily of listed common stocks and bonds, government securities, investments in trust funds, bank deposits and other investments. Pension cost includes the following components: Year ended December 31 (millions of dollars) 1996 1995 1994 - - ------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 40 $ 36 $ 36 Interest cost projected benefit obligation 80 77 75 Actual return on plan assets (157) (267) (3) Net deferred/amorization 50 164 (97) - - ------------------------------------------------------------------------------- $ 13 $ 10 $ 11 - - -------------------------------------------------------------------------------
49 Notes to Consolidated Financial Statements ------------------------------------------ (12) Pension Plans (continued) Assumptions used in accounting for defined benefit pension plans are as follows:
1996 1995 1994 - - ------------------------------------------------------------------ Discount rate 6.5--9.0% 7.0--9.0% 7.0--10.0% Rate of compensation level increase 2.5--6.0% 3.5--6.5% 4.0--6.5% Expected long-term rate of return on plan assets 6.5--9.5% 6.5--9.5% 6.5--9.5%
The funded status of the pension plans is as follows: Plans Whose Assets Plans Whose Earned Accumulated Accumulated Benefits Benefits Earned Plan Assets -------------------------------------------- December 31 (millions of dollars) 1996 1995 1996 1995 - - ------------------------------------------------------------------------------ Projected benefit obligation $ (913) $ (862) $ (144) $ (229) Plan assets at fair value 1,259 1,101 63 145 - - ------------------------------------------------------------------------------ Plan assets in excess of (less than) projected benefit obligation 346 239 (81) (84) Unrecognized prior service cost 47 25 7 24 Unrecognized net experience gain (342) (215) 4 (5) Unrecognized net obligation, net of amortization (20) (19) (1) (6) Additional minimum liability -- -- (5) (9) - - ------------------------------------------------------------------------------ Pension asset (liability) included in other assets (postemployment benefits) $ 31 $ 30 $ (76) $ (80) - - ------------------------------------------------------------------------------
The accumulated benefit obligation, which is included in the projected benefit obligation, represents the actuarial present value of benefits attributed to employee service and compensation levels to date. The accumulated benefit obligation was $919 million and $933 million at December 31, 1996 and 1995. The vested portion was $812 million and $825 million at December 31, 1996 and 1995. The U.S. pension plans provide that in the event of a plan termination within five years following a change in control of the company, any assets held by the plans in excess of the amounts needed to fund accrued benefits would be used to provide additional benefits to plan participants. A change in control generally means one not approved by the incumbent board of directors, including an acquisition of 25% or more of the voting power of the company's outstanding stock or a change in a majority of the incumbent board. Certain European subsidiaries maintain termination indemnity and special severance plans. The cost of these plans, determined in accordance with local government specifications, was $15 million, $12 million and $16 million in 1996, 1995 and 1994. The company maintains a 401(k) defined contribution plan covering substantially all U.S. employees. Company matching contributions for domestic hourly and certain other employees under the plan, based on the company's annual operating results and the level of individual participant's contributions, amounted to $7 million, $5 million and $8 million in 1996, 1995 and 1994. (13) Postretirement Benefit Plans The company currently sponsors a defined benefit health-care plan that provides postretirement medical benefits to full time U.S. employees who have worked five years and attained age 55 while in service with the company. The plan is currently noncontributory and contains cost-sharing features such as deductibles, coinsurance and a lifetime maximum. The company does not fund the plan. No significant postretirement benefits are provided by the company to non-U.S. employees. 50 (13) Postretirement Benefit Plans (continued) The components of the annual postretirement benefit costs are as follows:
Year ended December 31 (millions of dollars) 1996 1995 1994 - - ---------------------------------------------------------------------------------- Service cost $11 $10 $ 9 Interest cost $28 $26 $26 - - ---------------------------------------------------------------------------------- $39 $36 $35 ==================================================================================
The components of the postretirement obligation are as follows:
December 31 (millions of dollars) 1996 1995 - - ------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $181 $173 Fully eligible active participants 87 85 Other active plan participants 114 120 - - ------------------------------------------------------------------------- Total 382 378 Unrecognized loss (1) (21) - - ------------------------------------------------------------------------- Postretirement obligation $381 $357 - - -------------------------------------------------------------------------
The assumed health care trend rate decreases gradually from 8% in 1996 and 1997, to 7% in 1998 and 1999 and finally to 6% in 2000 and future years. Increasing the health-care trend rate by one percentage point would increase the accumulated postretirement benefit obligation as of December 31, 1996 by $26 million and increase the annual postretirement benefit cost for 1996 by $3 million. Discount rates of 8.0% and 7.5% were used to determine the accumulated postretirement benefit obligation at December 31, 1996 and 1995. (14) Contingencies The company is involved in various legal actions arising in the normal course of business. Management, after taking into consideration legal counsel's evaluation of such actions, is of the opinion that the outcome of these matters will not have a material adverse effect on the company's financial position. The company is a party to certain financial instruments with off-balance- sheet risk which are entered into in the normal course of business. These instruments consist of financial guarantees, repurchase agreements and letters of credit. The company's exposure to credit loss in the event of nonperformance by the debtors is the contractual amount of the financial instruments. The company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Collateral or other security is generally required to support financial instruments with off-balance-sheet credit risk. At December 31, 1996 financial guarantees, repurchase agreements and letters of credit totaled $88 million. 51 Notes to Consolidated Financial Statements ------------------------------------------ (15) Business Segment Information Geographic Segments - Major Home Appliances
North Other used Major Home Year ended December 31 (millions of dollars) America Europe Eliminations Appliances - - ------------------------------------------------------------------------------------------------------------------------------ Net sales 1996 $5,441 $2,592 $ 490 $8,523 1995 $5,093 $2,502 $ 568 $8,163 1994 $5,048 $2,451 $ 450 $7,949 Operating profit (loss) 1996 $ 380 $ (17) $ (85) $ 278 1995 $ 314 $ 90 $ (38) $ 366 1994 $ 311 $ 43 $ 16 $ 370 Identifiable assets 1996 $2,080 $1,951 $2,135 $6,166 1995 $2,171 $2,084 $1,913 $6,168 1994 $2,137 $1,804 $1,339 $5,280 Depreciation expense 1996 $ 164 $ 107 $ 20 $ 291 1995 $ 140 $ 105 $ 8 $ 253 1994 $ 141 $ 98 $ 4 $ 243 Net capital expenditures 1996 $ 160 $ 103 $ 70 $ 333 1995 $ 262 $ 186 $ 29 $ 477 1994 $ 269 $ 135 $ 12 $ 416
Identifiable assets are those assets directly associated with the respective operating activities. Corporate assets which consist principally of cash, investments, prepaid expenses, intangibles, deferred income taxes and property and equipment related to corporate activities are included as other. Substantially all of the company's trade receivables are from distributors and retailers. Sales activity with Sears, Roebuck and Co., a North American major home appliance retailer, represented 21%, 20% and 19% of consolidated net sales in 1996, 1995 and 1994. Related receivables were 5% of consolidated trade and financing receivables for both December 31, 1996 and 1995. Financial Services: WFC financial information is included in the supplemental consolidating data column of the consolidated financial statements. 52 (16) Quarterly Results of Operations (unaudited)
Three Months Ended (millions of dollars, ----------------------------------------------- except per-share data) December 31 September 30 June 30 March 31 - - -------------------------------------------------------------------------------- 1996: Net sales $ 2,126 $ 2,155 $ 2,229 $ 2,013 Cost of products sold $ 1,644 $ 1,679 $ 1,737 $ 1,563 Financial services revenue, less related interest expense $ 18 $ 27 $ 27 $ 30 Net earnings $ 45 $ 21 $ 52 $ 38 Per share of common stock: Primary earnings $ .60 $ .28 $ .70 $ .50 Dividends paid $ .34 $ .34 $ .34 $ .34 Stock price: High $50-7/8 $53-1/8 $61-3/8 $59-1/2 Low $44-1/4 $47-7/8 $48 $50-1/8 Close $46-5/8 $50-5/8 $49-5/8 $55-1/4 1995: Net sales $ 2,046 $ 2,109 $ 2,069 $ 1,939 Cost of products sold $ 1,591 $ 1,626 $ 1,590 $ 1,438 Financial services revenue, less related interest expense $ 30 $ 29 $ 29 $ 30 Net earnings $ 18 $ 64 $ 52 $ 75 Per share of common stock: Primary earnings $ .25 $ .85 $ .70 $ 1.00 Dividends paid $ .34 $ .34 $ .34 $ .34 Stock price: High $58 $60-7/8 $58-1/4 $55-1/2 Low $50-3/4 $54-3/8 $49-7/8 $49-1/4 Close $53-1/4 $57-3/4 $55 $54-3/4
Restructuring initiatives described in Note 10 reduced third quarter net earnings by $19 million or $.25 per share. 53 Report of Ernst & Young LLP, Independent Auditors ------------------------------------------------- The Stockholders and Board of Directors Whirlpool Corporation Benton Harbor, Michigan We have audited the accompanying consolidated balance sheets of Whirlpool Corporation as of December 31, 1996 and 1995, and the related consolidated statements of earnings and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the Brazilian affiliates used as the basis for recording the Company's equity in their net earnings, as presented in Note 5 to the consolidated financial statements. The financial statements of those affiliates were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Brazilian affiliates, is based on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Whirlpool Corporation at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Chicago, Illinois January 20, 1997 Report by Management on the Consolidated Financial Statements ---------------------------------------- The management of Whirlpool Corporation has prepared the accompanying financial statements. The financial statements have been audited by Ernst & Young, independent auditors, whose report, based upon their audits and the reports of other independent auditors, expresses the opinion that these financial statements present fairly the consolidated financial position, results of operations and cash flows of Whirlpool and subsidiaries in accordance with generally accepted accounting principles. Their audits are conducted in conformity with generally accepted auditing standards. The financial statements were prepared from the company's accounting records, books and accounts which, in reasonable detail, accurately and fairly reflect all material transactions. The company maintains a system of internal controls designed to provide reasonable assurance that the company's accounting records, books and accounts are accurate and that transactions are properly recorded in the company's books and records, and the company's assets are maintained and accounted for, in accordance with management's authorizations. The company's accounting records, policies and internal controls are regularly reviewed by the company's internal audit staff. The audit committee of the board of directors of the company, which is composed of four directors who are not employed by the company, considers and makes recommendations to the board of directors as to accounting and auditing matters concerning the company, including recommending for appointment by the board the firm of independent auditors engaged on an annual basis to audit the financial statements of Whirlpool and its majority-owned subsidiaries. The audit committee meets with the independent auditors at least three times each year to review the scope of the audit, the results of the audit and such recommendations as may be made by said auditors with respect to the company's accounting methods and system of internal controls. /s/ John P. Cunningham John P. Cunningham Executive Vice President and Chief Financial Officer January 31, 1997 54 Directors & Senior Management ----------------------------- Directors - - -------------------------------------------------------------------------------- Robert A. Burnett Former Chairman of the Board, Meredith Corp. Corporate Governance, Human Resources Herman Cain Chairman of the Board, Godfather's Pizza, Inc. Corporate Governance Allan D. Gilmour Former Vice Chairman, Ford Motor Co. Finance, Human Resources Kathleen J. Hempel Vice Chairman and Chief Financial Officer, Fort Howard Corp. Audit, Finance Arnold G. Langbo Chairman of the Board and Chief Executive Officer, Kellogg Co. Corporate Governance, Human Resources William D. Marohn Vice Chairman of the Board of the company Miles L. Marsh Chairman and Chief Executive Officer, James River Corp. Audit, Finance Philip L. Smith Former Chairman of the Board, President and Chief Executive Officer, Pillsbury Co. Corporate Governance, Finance Paul G. Stern Partner, Thayer Capital Partners L.L.P. Audit, Human Resources Janice D. Stoney Former Executive Vice President, Total Quality System, US WEST Communications Group, Inc. Audit David R. Whitwam Chairman of the Board and Chief Executive Officer of the company Senior Management - - -------------------------------------------------------------------------------- Executive Officers David R. Whitwam Chairman of the Board and Chief Executive Officer William D. Marohn Vice Chairman of the Board Executive Vice Presidents Ralph F. Hake Senior Executive Vice President, Operations John P. Cunningham Chief Financial Officer Jeff M. Fettig President, Whirlpool Europe B.V. Robert D. Hall President, Whirlpool Asia Ronald L. Kerber Chief Technology Officer P. Daniel Miller Latin American Appliance Group Senior Officers Vice Presidents J. C. Anderson Group Manufacturing and Technology, North America Roy V. Armes President, Greater China, Whirlpool Asia Bradley J. Bell Treasurer Garrick D'Silva President and Chief Executive Officer, South Asia, Whirlpool Asia E. R. Dunn Human Resources and Assistant Secretary Bengt G. Engstrom Manufacturing and Technology, Whirlpool Europe Dandridge L. Harrison Corporate Affairs Edward J. F. Herrelko Group Sales and Marketing, Whirlpool Europe Daniel F. Hopp General Counsel and Secretary Halvar Johansson Corporate Technology and Engineering Development Kenneth W. Kaminski Small Appliance Business Unit James E. LeBlanc Chairman of the Board, President and Chief Executive Officer, Whirlpool Financial Corporation Gregory T. McManus Group Sales and Distribution, North America Rudy Provoost Group Marketing, Whirlpool Europe Michael D. Thieneman Global Procurement Operations Robert G. Thompson Controller Michael A. Todman Product Teams, North America David W. Williams Group Marketing, North America 55 Eleven-Year Consolidated Statistical Review -------------------------------------------
(millions of dollars except share and employee data) 1996 1995 1994 1993 1992 1991 - - ------------------------------------------------------------------------------------------------------------------ Consolidated Operations - - ----------------------- Net sales $ 8,523 $ 8,163 $ 7,949 $ 7,368 $ 7,097 $ 6,550 Financial services 173 184 155 165 204 207 - - ------------------------------------------------------------------------------------------------------------------ Total revenues $ 8,696 $ 8,347 $ 8,104 $ 7,533 $ 7,301 $ 6,757 Operating profit $ 300 $ 396 $ 397 $ 482 $ 479 $ 393 Earnings from continuing operations before income taxes and other items $ 130 $ 242 $ 292 $ 375 $ 372 $ 304 Earnings from continuing operations before accounting change (1) $ 156 $ 209 $ 158 $ 231 $ 205 $ 170 Net earnings (2) $ 156 $ 209 $ 158 $ 51 $ 205 $ 170 Net capital expenditures $ 336 $ 483 $ 418 $ 309 $ 288 $ 287 Depreciation $ 318 $ 282 $ 246 $ 241 $ 275 $ 233 Dividends $ 101 $ 100 $ 90 $ 85 $ 77 $ 76 - - ------------------------------------------------------------------------------------------------------------------ Consolidated Financial Position - - ------------------------------- Current assets $ 3,812 $ 3,541 $ 3,078 $ 2,708 $ 2,740 $ 2,920 Current liabilities $ 4,022 $ 3,829 $ 2,988 $ 2,763 $ 2,887 $ 2,931 Working capital $ (210) $ (288) $ 90 $ (55) $ (147) $ (11 Property, plant and equipment-net $ 1,798 $ 1,779 $ 1,440 $ 1,319 $ 1,325 $ 1,400 Total assets $ 8,015 $ 7,800 $ 6,655 $ 6,047 $ 6,118 $ 6,445 Long-term debt $ 955 $ 983 $ 885 $ 840 $ 1,215 $ 1,528 Total debt-appliance business $ 1,591 $ 1,635 $ 965 $ 850 $ 1,198 $ 1,330 Stockholders' equity $ 1,926 $ 1,877 $ 1,723 $ 1,648 $ 1,600 $ 1,515 - - ------------------------------------------------------------------------------------------------------------------ Per Share Data - - -------------- Earnings from continuing operations before accounting change $ 2.08 $ 2.80 $ 2.10 $ 3.19 $ 2.90 $ 2.45 Net earnings $ 2.08 $ 2.80 $ 2.10 $ 0.67 $ 2.90 $ 2.45 Dividends $ 1.36 $ 1.36 $ 1.22 $ 1.19 $ 1.10 $ 1.10 Book value $ 25.65 $ 25.08 $ 22.83 $ 22.80 $ 22.67 $ 21.78 Closing Stock Price - NYSE $46.5/8 $53.1/4 $50 1/4 $66 1/2 $44 5/8 $38 7/8
(millions of dollars except share and employee data) 1990 1989 1988 1987 1986 - - -------------------------------------------------------------------------------------------------------- Consolidated Operations - - ----------------------- Net sales $ 6,424 $ 6,138 $ 4,306 $ 4,104 $ 3,928 Financial services 181 $ 136 107 94 76 - - -------------------------------------------------------------------------------------------------------- Total revenues $ 6,605 $ 6,274 $ 4,413 $ 4,198 $ 4,004 Operating profit $ 349 $ 411 $ 261 $ 296 $ 326 Earnings from continuing operations before income taxes and other items $ 220 $ 308 $ 233 $ 280 $ 329 Earnings from continuing operations before accounting change (1) $ 72 $ 187 $ 161 $ 187 $ 202 Net earnings (2) $ 72 $ 187 $ 94 $ 192 $ 200 Net capital expenditures $ 265 $ 208 $ 166 $ 223 $ 217 Depreciation $ 247 $ 222 $ 143 $ 133 $ 120 Dividends $ 76 $ 76 $ 76 $ 79 $ 76 - - -------------------------------------------------------------------------------------------------------- Consolidated Financial Position - - ------------------------------- Current assets $ 2,900 $ 2,889 $ 1,827 $ 1,690 $ 1,654 Current liabilities $ 2,651 $ 2,251 $ 1,374 $ 1,246 $ 1,006 Working capital $ 249 $ 638 $ 453 $ 444 $ 648 Property, plant and equipment-net $ 1,349 $ 1,288 $ 820 $ 779 $ 677 Total assets $ 5,614 $ 5,354 $ 3,410 $ 3,137 $ 2,856 Long-term debt $ 874 $ 982 $ 474 $ 367 $ 298 Total debt-appliance business $ 1,026 $ 1,125 $ 441 $ 383 $ 194 Stockholders' equity $ 1,424 $ 1,421 $ 1,321 $ 1,304 $ 1,350 - - -------------------------------------------------------------------------------------------------------- Per Share Data - - -------------- Earnings from continuing operations before accounting change $ 1.04 $ 2.70 $ 2.33 $ 2.61 $ 2.72 Net earnings $ 1.04 $ 2.70 $ 1.36 $ 2.68 $ 2.70 Dividends $ 1.10 $ 1.10 $ 1.10 $ 1.10 $ 1.03 Book value $ 20.51 $ 20.49 $ 19.06 $ 18.83 $ 18.21 Closing Stock Price - NYSE $23 1/2 $ 33 $24 3/4 $24 3/8 $33 7/8
56
(millions of dollars except share and employee data) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - - ---------------------------------------------------------------------------------------------------------------------------------- Key Ratios - - ---------- Operating profit margin 3.5% 4.7% 4.9% 6.4% 6.6% 5.8% 5.3% 6.6% 5.9% 7.1% 8.1% Pre-tax margin (3) 1.5% 2.9% 3.6% 5.0% 5.1% 4.5% 3.3% 4.9% 5.3% 6.6% 8.2% Net margin (4) 1.8% 2.5% 2.0% 3.1% 2.8% 2.5% 1.1% 3.0% 3.6% 4.4% 5.0% Return on average stockholders' equity (5) 8.2% 11.6% 9.4% 14.2% 13.1% 11.6% 5.1% 13.7% 12.3% 14.1% 15.8% Return on average total assets (6) 1.8% 3.0% 2.8% 4.0% 3.3% 2.9% 1.4% 4.9% 4.9% 6.2% 8.0% Current assets to current liabilities 0.9 0.9 1.0 1.0 0.9 1.0 1.1 1.3 1.3 1.4 1.6 Total debt-appliance business as a percent of invested capital (7) 42.6% 43.3% 34.4% 31.6% 41.7% 46.1% 37.6% 39.2% 20.5% 19.3% - Price earnings ratio 22.4 19.0 23.9 20.8 15.4 15.9 22.7 12.2 18.2 9.1 12.5 Fixed charge coverage (8) 2.0 2.5 3.0 3.2 2.6 2.3 1.8 2.7 3.5 5.4 7.7 - - --------------------------------------------------------------------------------------------------------------------------------- Other Data - - ---------- Number of common shares outstanding (in thousands): Average 75,077 74,827 75,490 72,272 70,558 69,528 69,443 69,338 69,262 71,732 73,831 Year-end 74,415 74,081 73,845 73,068 70,027 69,640 69,465 69,382 69,289 69,232 74,128 Number of stockholders (year-end) 11,033 11,686 11,821 11,438 11,724 12,032 12,542 12,454 12,521 12,128 11,297 Number of employees (year-end) 48,163 45,435 39,016 39,590 38,520 37,886 36,157 39,411 29,110 30,301 30,520 Total return to shareholders (five year annualized) (9) 6.3% 20.8% 12.0% 25.8% 17.0% 6.7% 2.8% 11.3% 4.4% 6.2% 26.8%
(1) Accounting changes: 1993 - Accounting for postretirement benefits other than pensions, 1987 - Accounting for income taxes and 1986 - Accounting for pensions. (2) The Company's kitchen cabinet business was discontinued in 1988. (3) Earnings from continuing operations before income taxes and other items, as a percent of revenue. (4) Earnings from continuing operations before accounting change, as a percent of revenue. (5) Earnings from continuing operations before accounting change divided by average stockholders' equity. (6) Earnings from continuing operations before accounting change, plus minority interest, divided by average total assets. (7) Debt less cash and equivalents divided by debt, stockholders' equity and minority interests less cash and equivalents. (8) Ratio of earnings from continuing operations (before income taxes, accounting change and interest expense) to interest expense. (9) Stock appreciation plus reinvested dividends. 57 EX-21 5 LIST OF SUBSIDIARIES Subsidiaries ------------ Subsidiary and Name Jurisdiction In Under Which It Does Business Which Organized - - ---------------------------- --------------- Whirlpool Europe B.V./1/ The Netherlands Whirlpool Properties, Inc./1/ Michigan Whirlpool Financial Corporation Delaware Whirlpool Financial National Bank/2/ A National Banking Association Multibras S.A. Electrodomesticos/3/ Brazil The names of the Company's other subsidiaries are omitted because, considered in the aggregate as a single subsidiary, such subsidiaries would not constitute a significant subsidiary as of December 31, 1996. - - -------------------------------------- 1Wholly-owned by the Company 2Wholly-owned by Whirlpool Financial Corporation 3An affiliate of the Company which constitutes a significant subsidiary as of December 31, 1996 EX-23.(II)(A) 6 CONSENT OF ERNST & YOUNG Consent of Ernst & Young LLP The Board of Directors Whirlpool Corporation Benton Harbor, Michigan We consent to the incorporation by reference in Registration Statement Nos. 33-34490, 33-34037, 33-21360, 33-00201, 2-64261, 33-05904, 33-40249, 33-40010, 33-43823, 33-02827 and 33-02835 of Whirlpool Corporation and Registration Statement Nos. 33-26680 and 33-53196 of Whirlpool Corporation and Whirlpool Savings Plan of our report dated January 20, 1997, with respect to the consolidated financial statements and schedule of Whirlpool Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 1996. /s/ Ernst & Young LLP March 19, 1997 EX-23.(II)(B) 7 CONSENT OF PRICE WATERHOUSE CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement Nos. 33-34490, 33-34037, 33-21360, 33-00201, 2-64261, 33-05904, 33-40249, 33-40010, 33-43823, 33-02827 and 33-02825 of Whirlpool Corporation and Registration Statement Nos. 33-26680 and 33-53196 of Whirlpool Corporation and Whirlpool Savings Plan of our reports with respect to the financial statements of Brasmotor S.A. and its subsidiaries, Multibras S.A. Eletrodomesticos and its subsidiaries and Empresa Brasileira de Compressores S.A.--EMBRACO and its subsidiaries dated January 22, 1997 included in this Annual Report (Form 10-K) for the year ended December 31, 1996. Price Waterhouse Auditores Independentes Sao Paulo, Brazil March 19, 1997 EX-24 8 POWERS OF ATTORNEY POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer, or both, of WHIRLPOOL CORPORATION, a Delaware corporation (hereinafter called the "Corporation"), does hereby constitute and appoint DAVID R. WHITWAM, WILLIAM D. MAROHN, JOHN P. CUNNINGHAM, and DANIEL F. HOPP, with full power to each ofthem to act alone, as the true and lawful attorneys and against of the undersigned, with full power of substitution and resubstitution to each of said attorneys, to execute, file or deliver any and all instruments and to do all acts and things which said attorneys and agents, or any of them, deem advisable to enable the Corporation to comply with the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect any thereof, in connection with the filing under said Securities Exchange Act of the Corporation's Annual report on Form 10-K for the year ended December 31, 1996, including specifically, but without limitation of the general authority hereby granted, the power and authority to sign his or her name as a director or officer, or both, of the Corporation, as indicated below opposite his or her signature, to the Annual Report on Form 10-K, or any amendment, post-effective amendment, or papers supplemental thereto to be filed in respect of said Annual Report; and each of the undersigned does hereby fully ratify and confirm all that said attorneys and agents, or any of them, or the substitute of any of them, shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has subscribed these presents, as of the 18th day of February, 1997. Name Title /s/ David R. Whitwam Director, Chairman of the Board - - ---------------------- and Chief Executive Officer David R. Whitwam (Principal Executive Officer) /s/ William D. Marohn Director, President and - - ---------------------- Chief Operating Officer William D. Marohn /s/ John P. Cunningham Executive Vice President and - - ---------------------- Chief Financial Officer John P. Cunningham (Principal Financial Officer) /s/ Robert G. Thompson Vice President and Controller - - ---------------------- (Principal Accounting Officer) Robert G. Thompson /s/ Robert A. Burnett Director - - ---------------------- Robert A. Burnett /s/ Herman Cain Director - - ---------------------- Herman Cain /s/ Allan D. Gilmour Director - - ---------------------- Allan D. Gilmour /s/ Kathleen J. Hempel Director - - ---------------------- Kathleen J. Hempel /s/ Arnold G. Langbo Director - - ---------------------- Arnold G. Langbo /s/ Miles L. Marsh Director - - ---------------------- Miles L. Marsh /s/ Philip L. Smith Director - - ---------------------- Philip L. Smith /s/ Paul G. Stern Director - - ---------------------- Paul G. Stern /s/ Janice D. Stoney Director - - --------------------- Janice D. Stoney EX-27 9 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from 1996 10-K Whirlpool Corporation and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-1995 JAN-01-1996 DEC-31-1996 129 0 2,366 58 1,034 3,812 3,839 2,041 8,015 4,022 955 81 0 0 1,845 8,015 8,523 8,696 6,623 8,331 65 63 165 130 81 156 0 0 0 156 2.08 2.07
EX-99 10 CONSOLIDATED FINANCIAL STMTS OF MULTIBRAS EXHIBIT 99 Multibras S.A. Eletrodomesticos and Its Subsidiaries Consolidated Financial Statements at December 31, 1996 and 1995 and Report of Independent Accountants F-13 Multibras S.A. Eletrodomesticos and its subsidiaries Consolidated Balance Sheet at December 31 In thousands of U.S. dollars - - --------------------------------------------------------------------------------
Assets 1996 1995 --------- --------- Current assets Cash and equivalents 524,740 350,961 Trade receivables 308,120 243,557 Inventories 300,664 237,112 Other assets 87,775 73,588 --------- --------- 1,221,299 905,218 --------- --------- Non-current assets Deferred income taxes 59,150 37,387 Intangibles, net 11,414 12,528 Investments in affiliated companies 36,920 33,073 Sundry investments and other assets 35,772 32,479 --------- --------- 143,256 115,467 --------- --------- Property, plant and equipment 606,604 554,364 --------- --------- 1,971,159 1,575,049 ========= =========
Liabilities 1996 1995 --------- --------- Current liabilities Short-term debt 265,789 203,158 Accounts payable 156,317 152,844 Employee compensation 71,672 62,534 Income taxes 51,452 25,405 Product warranty 24,032 16,326 Other taxes payable 43,947 22,546 Other accrued expenses 53,268 28,822 Dividends 37,669 16,865 --------- --------- 704,146 528,500 --------- --------- Long-term liabilities Long-term debt 182,447 172,483 Deferred income taxes 25,720 24,590 Employees' severance benefits 44,210 27,613 Other liabilities 27,888 33,342 --------- --------- 280,265 258,028 --------- --------- Commitments and contingencies (Note 10) Minority interests 161,717 145,040 --------- --------- Stockholders' equity Capital stock 431,230 429,038 Retained earnings 393,801 214,443 --------- --------- 825,031 643,481 --------- --------- 1,971,159 1,575,049 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-14
Multibras S.A. Eletrodomesticos and its subsidiaries Consolidated Statement of Earnings Years Ended December 31 In thousands of U.S. dollars (except per-share amounts) - - -------------------------------------------------------------------------------------------- 1996 1995 ---------- ----------- Net sales 2,528,327 2,138,389 Cost of products sold (1,786,359) (1,609,597) Selling and administrative expenses (418,000) (358,633) --------- --------- Operating profit 323,968 170,159 --------- --------- Interest expense (38,338) (64,819) Export incentive credits 38,547 Interest income and other, net 50,055 87,788 --------- --------- 11,717 61,516 --------- --------- Earnings before tax, equity earnings and minority interest 335,685 231,675 Income taxes Current (118,786) (71,891) Deferred 22,345 (2,664) Tax incentives 17,026 15,026 --------- --------- Income before equity earnings and minority interest 256,270 172,146 Equity in earnings of affiliated companies 6,307 6,638 Minority interest (19,429) (30,517) --------- --------- Net earnings 243,148 148,267 ========= ========= Earnings per thousand shares - US$ 220.79 134.63 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-15 Multibras S.A. Eletrodomesticos Statement of Movement in Stockholders' Equity In thousands of U.S. dollars (except per-share amounts) - - --------------------------------------------------------------------------------
Retained Capital stock earnings ------------- ------------- At December 31, 1994 429,038 93,084 Net earnings for the year 148,267 Dividends Interim (US$ 12.73 per thousand shares) (14,023) Final (US$ 11.70 per thousand shares) (12,885) ------------- ------------- At December 31, 1995 429,038 214,443 Capitalization of retained earnings 2,192 (2,192) Net earnings for the year 243,148 Dividends Interim (US$ 23.23 per thousand shares) (25,578) Final (US$ 32.71 per thousand shares) (36,020) ------------- ------------- At December 31, 1996 431,230 393,801 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. F-16 Multibras S.A. Eletrodomesticos and its subsidiaries Consolidated Statement of Cash Flows Years Ended December 31 In thousands of U.S. dollars - - --------------------------------------------------------------------------------
1996 1995 ------- ------- Cash flows from operating activities: Net earnings for the year 243,148 148,267 ------- ------- Adjustments to reconcile net earnings to net cash provided by operating activities: Loss on translation 12,369 11,288 Equity in net earnings of affiliated companies, less dividends received (4,320) (4,191) Depreciation and amortization 97,449 81,463 Gain on sale of property, plant and equipment and investments (5,818) (862) Foreign exchange gain (4,637) (5,586) Deferred income tax (22,345) 2,664 Minority interests 19,429 30,517 ------- ------- 92,127 115,293 ------- ------- Changes in assets and liabilities, net of effects of business acquisitions and dispositions: Trade receivables (82,906) (128,182) Inventories (63,552) (82,843) Other assets (19,552) (30,313) Long-term assets 9,796 7,917 Accounts payable 13,752 47,221 Other payables and accruals 101,011 94,882 ------- ------- (41,451) (91,318) ------- ------- Total adjustments 50,676 23,975 Net cash provided by operating activities 293,824 172,242 ------- -------
F-17
Multibras S.A. Eletrodomesticos and its subsidiaries Consolidated Statement of Cash Flows Years Ended December 31 In thousands of U.S. dollars (continued) - - ------------------------------------------------------------------------------------------- 1996 1995 -------- -------- Cash flows from investing activities: Proceeds from sale of property, plant and equipment and investments and other long-term assets disposals 26,867 15,267 Net additions to property, plant and equipment (157,918) (134,558) Increase in investments in affiliated companies and sundry investments, including goodwill (19,328) (671) -------- -------- Net cash used in investing activities (150,379) (119,962) -------- -------- Cash flows from financing activities: Short-term debt 78,223 133,536 Net increase in long-term debt 21,765 55,940 Dividends paid (38,463) (30,966) Dividends to minority interests (6,069) (3,520) Increase in minority interests 986 13,919 -------- -------- Net cash provided by financing activities 56,442 168,909 -------- -------- Effect of exchange rate changes on cash (26,108) (65,243) Net increase in cash and equivalents 173,779 155,946 Cash and equivalents at beginning of year 350,961 195,015 -------- -------- Cash and equivalents at end of year 524,740 350,961 ======== ======== Supplemental disclosures of cash flow information Cash paid during the year for Interest 27,330 21,189 Income taxes 67,465 37,844
The accompanying notes are an integral part of these consolidated financial statements F-18 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated ------------------------------------------------------------------------ 1 Summary of Principal Accounting Policies (a) Nature of operations The Company is the leading Brazilian manufacturer and marketer of home appliances. The majority of its production is sold in the local market. The Company was formed in 1994 as a result of the merger of three companies under common control with consolidated assets of US$ 1,176,441, net sales of US$ 1,506,299 and net earnings of US$ 135,729 at, and for the year ended, December 31, 1994. (b) Bases of consolidation The consolidated financial statements include the financial statements of Multibras S.A. Eletrodomesticos and all majority-owned subsidiaries. Investments in affiliated companies are accounted for by the equity method. All intercompany receivables and payables, revenues and expenses, unrealized profits and losses and investments in directly or indirectly owned subsidiary companies have been eliminated. The amounts of net earnings and stockholders' equity attributed to minority stockholders are separately stated in the financial statements. (c) Bases of adjustment and remeasurement into U.S. dollars The Company is incorporated in Brazil and its books and records and those of its Brazilian subsidiaries are kept in reais and in accordance with Brazilian generally accepted accounting principles. The financial statements expressed in U.S. dollars conform with accounting principles generally accepted in the United States of America and reflect the adjustment and remeasurement into U.S. dollars on the bases set out in (i) and (ii) below: (i) Adjustments The following principal adjustments have been reflected in the U.S. dollar financial statements: . Present value adjustment of short-term receivables and payables. . Interest incurred on financing of property, plant and equipment under construction is capitalized in accordance with FAS 34. . Income taxes are accounted for in accordance with FAS 109. . Pension expense is recognized in accordance with FAS 87. F-19 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated - - -------------------------------------------------------------------------------- (ii) Remeasurement Operations in hyperinflationary economy - Brazil The basis of remeasurement of local currency into U.S. dollars is summarized as follows: Basis of remeasurement ---------------------- Inventories, intangibles, investments in affiliated Historical exchange rates companies, sundry investments, property, plant and equipment, accumulated depreciation, capital stock and retained earnings All other assets and liabilities Closing exchange rate of R$ 1,0395 (1995 - R$ 0.9726) per US$ 1 Income and expense, except for cost of products Accumulation of the monthly operations, sold, depreciation, amortization, and equity in each translated at the respective month- earnings of affiliated companies, which are at end exchange rate, resulting in an individual historical rates weighted average exchange rate for each income and expense
Price-level restatements, which were required to be recorded in the local books up to December 31, 1995 to partially recognize the effects of inflation, do not receive a U.S. dollar equivalent on remeasurement, except insofar as the price-level restatements affect the computation of income taxes. Had the undistributed retained earnings reflected in the official accounting records at December 31, 1996 and 1995 of R$ 322.711 thousand and R$ 153.623 thousand (shown in the accompanying financial statements at US$ 393.801 and US$ 214,443), been expressed in U.S. currency at the prevailing exchange rate on those dates, the amounts thereof would have been US$ 310.448 and US$ 157.951. The resulting remeasurement gains and losses are classified in the statement of earnings as detailed in Note 12. Operations in non-hyperinflationary economies - foreign Balance sheet items Closing exchange rate Income and expenses Exchange rate prevailing at the time income is earned and expense is incurred Translation gains and losses are taken directly to equity.
F-20 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated --------------------------------------------------------------------------- (d) Cash and equivalents Cash and equivalents are carried at cost plus interest and include highly liquid financial investments with original maturities of 90 days or less. (e) Trade receivables The Company makes substantial sales to a relatively small number of home appliance retailers, which operate nationally or regionally. Trade receivables are stated at estimated net realizable values. An allowance for uncollectible accounts is provided in an amount considered to be sufficient to meet probable future losses. (f) Inventories Inventories are stated at the lower of average cost of purchase or production, replacement cost or net realizable value. (g) Property, plant and equipment Property, plant and equipment are stated at cost. Depreciation is computed on the straight-line method, over the estimated useful lives of the various classes of assets. Expenditures for maintenance and repairs are charged to income. Improvements and major renewals are capitalized. (h) Recoverability of long-lived assets On an annual basis or more frequently if circumstances require, the Company evaluates long-lived assets, including property, plant and equipment, investments and intangibles, against current and estimated undiscounted future operating income of the related businesses. No impairment losses have been recorded for any of the periods presented. Write-down of the carrying value of assets or groups of assets will be made, if appropriate. (i) Current and long-term liabilities These are adjusted for the effects of indexation or exchange rate fluctuations on the basis of the contractually agreed indexes or rates, when applicable. (j) Product warranty Provision is made currently for estimated product warranty costs, based on past experience and future expected commitments. F-21 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated ----------------------------------------------------------------------- (k) Revenue and expense recognition Sales revenues are recognized when products are shipped or services are rendered. Expenses and costs are recognized on the accrual basis. (l) Income taxes (i) Under the terms of the Government International Trade Authority (BEFIEX) fiscal incentive program, which expires in 1998, earnings from qualified export sales are subject to income tax at the rate of 6%, in the proportion that those export sales bear to total Company sales. That part of earnings not deemed, on this basis, to be eligible for a reduced tax rate is subject to income tax at the standard statutory rate. The Company also records accelerated depreciation on certain plant and equipment for tax purposes only. (ii) Pursuant to FAS 109 "Accounting for Income Taxes" the net tax charges or benefits related to (i) tax loss carryforwards available to be offset against future taxable income and (ii) tax effects of temporary differences between tax results and financial reporting results, excluding the effects of indexation recorded for tax purposes and changes in exchange rates, are recorded at the enacted tax rates at each balance sheet date. (iii) Income taxes are recorded gross of tax incentive investments and subsequently reduced by the amount of incentive investment deposits when received. (m) Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates .
2 Trade receivables 1996 1995 ------- ------- Trade receivables 442,476 354,202 Trade receivables sold with recourse (78,718) (73,614) Allowance for doubtful accounts (55,638) (37,031) ------- ------- 308,120 243,557 -------- -------
F-22 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated --------------------------------------------------------------------------- 3 Inventories
1996 1995 ------------------- Finished products and work in progress 128,736 79,261 Raw materials and others 171,928 157,851 ------------------- 300,664 237,112 -------------------
4 Investments in affiliated companies (i) The Company has direct voting interests of 36% in Multibras da Amazonia S.A., 50% in each of Sabrico Utilidades Domesticas Ltda. and Consorcio Nacional Brastemp Sabrico S/C Ltda., and other companies engaged in the manufacture of home appliances or related components. (ii) In February 1995, the subsidiary company Empresa Brasileira de Compressores S.A. - EMBRACO entered into a joint venture to produce compressors in China. The subsidiary is the majority partner of the joint venture with an interest of 52%. As of December 31, 1996, US$13,807 was invested as capital in the joint venture. The other partners in this joint venture are Whirlpool Overseas Holdings Corporation (8%) and Beijing Snowflake Eletric Appliance Group Corporation (40%). (iii)In September, 1996, the investment in Motores Eletricos Brasil S.A. was sold to a third party for US$22,026. 5 Property, plant and equipment
Annual depreciation 1996 1995 rate% -------------------------------------- Land 10,993 11,171 Buildings 165,422 156,115 4 Machinery, equipment and installations 794,830 729,037 10 to 40 Molds and tools 114,231 114,325 10 to 20 Furniture and fixtures 41,124 42,198 10 to 20 Other 36,771 38,236 6 to 20 --------------------- 1,163,371 1,091,082 Accumulated depreciation and amortization (680,309) (606,390) --------------------- 483,062 484,692 Plant and equipment - investments in progress 110,458 64,100 Advances to suppliers 13,084 5,572 --------------------- 606,604 554,364 ---------------------
Property, plant and equipment of US$3,709 are pledged in guarantee of borrowings. F-23 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated -------------------------------------------------------------------------- 6 Debt
Interest 1996 1995 ----------------------- -------------------------------- Local currency loans - Monetary correction plus Brazil interest of 12% p.a. 74,546 35,165 Foreign currency loans . U.S. dollars Interest from 8 to 12,4% p.a. 290,075 229,716 . Italian lire RIBOR plus 1.25% p.a. 83,615 110,760 -------------------------------- 448,236 375,641 Current portion (265,789) (203,158) -------------------------------- Long-term portion 182,447 172,483 --------------------------------
At December 31, 1996, the long-term portion of total long-term debt matures in the following years: 1998 51,629 1999 90,385 2000 27,210 2001 10,475 Thereafter 2,748 -------------------------------- 182,447 ---------------------------------
7 Income Tax (a) Tax rate Income taxes in Brazil include Federal income tax and social contribution (which is an additional Federal tax on income). There are no State or local income taxes in Brazil. The statutory rates applicable in each year presented were as follows (in percentage):
1996 1995 -------------------------------- Federal income tax 25% 43% Social contribution 8% 10% Adjustment to composite rate (2%) (5%) -------------------------------- Composite Federal income tax rate 31% 48% --------------------------------
The social contribution is deductible both for Federal income tax and social contribution purposes. F-24 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated -------------------------------------------------------------------------- (b) Income tax reconciliation The amount reported as income tax expense or benefit is reconciled to the statutory rates as follows:
1996 1995 --------- --------- Earnings before income tax, equity earnings and minority interest 335,685 231,675 Tax charge at statutory rates 104,062 111,204 Adjustments to derive effective rate: Effects of change in tax rates on deferred taxes. 5,826 Permanent differences 3,208 (8,028) Reduced tax rates on incetivated export sales (6,609) (12,447) Valuation allowance 3,536 1,194 Difference related to assets and liabilities remeasured at historical exchange rates that result from (i) changes in exchange rates and (ii) indexing used for Brazilian tax purposes (7,756) (23,194) --------- --------- Income taxes 96,441 74,555 --------- ---------
(c) Deferred Income Taxes The deferred tax assets (liabilities) are comprised of the following:
1996 1995 --------- --------- Differences between the tax and the book basis of certain property, plant and equipment. (20,703) (20,378) Acelerated depreciation (6,794) (4,819) Temporary differences between Brazilian tax basis and US GAAP 7,306 1,977 Tax loss carryforwards 3,536 1,194 Allowances and accruals not currently deductible 47,439 25,850 Others 6,182 10,167 ---------- --------- 36,966 13,991 Valuation allowance (3,536) (1,194) --------- --------- 33,430 12,797 --------- --------- Assets 59,150 37,387 Liabilities (25,720) (24,590) --------- --------- 33,430 12,797 --------- ---------
8 Employees' Severance Benefits As required by Italian legislation, the subsidiary Embraco Europe SrL. accrues severance benefits equal to one month's salary for every year of service of each employee. 9 Stockholders' Equity Issued and fully-paid capital stock comprises 739,465,532 common shares and 361,804,950 preferred shares with no par value. The Company's statutes establish a minimum compulsory annual dividend of 25 % of net earnings for the year in local currency, adjusted in accordance with corporate legislation, subject to the minimum dividend priority of preferred stockholders. F-25 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated -------------------------------------------------------------------------- In the statutory financial statements, retained earnings include: (i) the tax incentive investments reserve, corresponding to that portion of the income tax liability applied in tax incentive investments; and (ii) the legal reserve which must be accumulated at the rate of 5% of the statutory net earnings until the reserve reaches 20% of capital stock in local currency. At December 31,1996 these restricted reserves totalled US$ 26,079. 10 Commitments and Contingencies (a) In 1989, a subsidiary initiated civil litigation contesting responsibility for the payment of loan principal amounting to approximately US$ 39,500. This loan, which did not have appropriate board approval, was allegedly authorized at that time by the then chief executive officer and, according to the financial institution, was drawn in the subsidiary's name, although the proceeds were never recorded by the subsidiary. Simultaneously with this legal action, a police inquiry was initiated at the subsidiary's request. In view of outside legal counsel's opinion that the chances of a favorable decision in respect of this matter are very high, management considers that no provision is necessary in respect thereof, and accordingly, no liability for this contingency is recorded in the financial statements. (b) Income tax returns for the last five years remain open to examination and final acceptance by the fiscal authorities. Other taxes are also open to review for varying periods. Management does not anticipate that any major assessments would arise in the event of an examination. (c) The Company and a subsidiary have signed a contract with BEFIEX under the terms of which they are committed to jointly export products with a value of US$ 1,987,000 and to make certain minimum capital expenditures during the ten-year period ending July 1998, in compensation for benefits relating to import and other taxes. In the event of failure to comply with these conditions, the Company and the subsidiary will be subject to the repayment of tax benefits previously obtained, plus interest and fine. Management expects that they will comply with these conditions. (d) In 1995, a subsidiary obtained a favorable decision in the law courts with respect to a legal claim relative to certain export incentives, which were eliminated by the government in 1989, in the amount of US$ 38,547. This amount was realized and recognized as income by the subsidiary in 1995. In September 1995, part of this amount was contested by the fiscal authorities. No provision has been recorded with respect to this claim as management, based on the opinion of its legal advisors, believes that the probability of any loss is remote. On December 16, 1996, a favorable decision was obtained by the Company and a subsidiary with respect to additional export incentives in connection with the BEFIEX program. The final implementation of such decision is dependent on the calculation of the amount involved and approval by the court. A reasonable estimation of the amount involved cannot be made at this time. 11 Related Party Transactions A subsidiary makes substantial sales to Whirpool Corporation, a significant shareholder of the Company, and its subsidiaries at normal prices and conditions. Accounts receivable from these companies totalled US$ 6,972 and US$ 6,306 at December 31, 1996 and 1995. F-26 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated --------------------------------------------------------------------------- 12 Gains and Losses on Remeasurement The gains and losses on translation have been reclassified to the related line items in the statement of earnings as follows:
1996 1995 --------- -------- Net sales 1,481 11,947 Cost of products sold 2,260 2,311 --------- -------- 3,741 14,258 Operating expenses 5,067 4,880 Interest and other income (22,311) (31,650) Income taxes 1,134 1,224 --------- -------- Aggregate loss on remeasurement (12,369) (11,288) ========= ========
13 Pension Plan The Company and its Brazilian subsidiaries maintain both contributory and concontributory defined benefit pension plans covering substantially all employees in Brazil. The plans provide pension benefits that are based on years of service and employees' compensation during a specified period before retirement. The Company's present funding policy for these plans is to generally make the minimum annual contribution required by applicable regulations. Assets held by the plans are managed by an outside public pension fund institution, which also manages funds of other unrelated employers and guarantees a minimum annual fixed return of 4% on plan assets. Annual pension expense comprises the following components:
1996 1995 -------- ------- Service cost - benefits earned during the year 12,188 8,605 Interest cost on projected benefit obligation 7,359 5,545 Actual return on plan assets (5,318) (5,714) Net amortization 7,354 7,898 --------- ------- 21,583 16,334 --------- -------
Assumptions used in accounting for defined benefit pension plans are as follows:
% per annum above the general price index ------------- Discount rate 6.00 Rate of compensation level increase 3.75 Expected long-term rate of return on plan assets 6.00
F-27 Multibras S.A. Eletrodomesticos and its subsidiaries Notes to the Consolidated Financial Statements at December 31, 1996 and 1995 In thousands of U.S. dollars, unless otherwise stated --------------------------------------------------------------------------- The funded status of the pension plans is as follows:
1996 1995 --------- -------- Projected benefit obligation (140,393) (106,102) Plan assets at fair value 52,122 46,019 ---------- -------- Projected benefit obligation in excess of plan assets (88,271) (60,083) Unrecognized net loss (gain) 15,348 (3,524) Unrecognized net obligation, net of amortization 49,488 53,911 --------- -------- Accrued pension expense, included in other accrued expenses (23,435) (9,696) ========= ========
The accumulated benefit obligation, which is included in the projected benefit obligation, represents the actuarial present value of benefits attributed to employee service and compensation levels to date. At December 31, 1996 and 1995, the accumulated benefit obligation was US$ 78,333 and US$ 63,364, respectively. The vested portion was US$ 60,991 in 1996 and US$ 51,817 in 1995. 14 Fair value of financial instruments Besides cash and equivalents which are stated at cost plus accrued interest and which approximate fair value, the carrying value of the Company's other financial instruments approximates fair value at December 31, 1996 and 1995 reflecting the short-term maturity of these instruments at those dates. Based on interest rates currently available to Multibras S. A. Eletrodomesticos for bank loans with similar terms and average maturities, the fair value of long-term debt at December 31, 1996 and 1995 approximates its carrying value. Fair value estimates are made at a specific date, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. * * * F-28 -----END PRIVACY-ENHANCED MESSAGE-----